TARIFFS - WHO PAYS?

Civitas has produced a report apparently showing the EU would be worse off by £7.7bn (HERE) if they introduce tariffs according to the regime in place at the moment and using trading figures from 2015. Newspapers have picked this up and are reporting it as a potential own-goal for the EU.

However, I think it is simplistic and wrong. Here's why:

Firstly, it assumes there is no change - either to prices or the behaviour of buyers or sellers. The more likely outcome is a change in both to some degree.

Secondly, although it is right to say the government of the importing country gets the benefit of the tariff and this comes from the supplier in the exporting  country, it is more likely than not that the customer in the importing country bears the cost because the price will go up.  Civitas appears to make the error of thinking manufacturers pay VAT - of course they do but it is the customer who bears the cost.

So, to say the EU will pay £7.7bn is misleading. If European suppliers increase prices by the same amount as the tariff, it will be the UK customers who will pay.  And if we are at the same time compensating Nissan (and others) for the tariffs applied to exports into the EU the UK will carry all of the costs of any tariffs (see HERE).