With the UK finally leaving the EU this week, talk is beginning to ramp up over what a potential trade deal with the EU is likely to look like. The UK government has expressed their desire to maintain a friendly trade relationship with their EU partners, free from any tariffs or quotas.
Tariffs are taxes which a country imposes on imported goods and services. These are paid for by the importer but are usually passed onto consumers in the form of higher prices. With no tariffs on imported goods, this would mean the UK trading relationship with the EU remains the same as it currently is, with goods and services able to flow freely between borders.
Quotas are fixed amounts of a good or service which is allowed to be imported into a country. For example, following the UK’s exit from the EU, EU countries may stipulate that UK goods and services be subject to quotas, limiting the amount which can be exported to the EU.
Both tariffs and quotas are protectionist policies which a government can use to restrict trade and thus protect domestic industries. After the UK officially leaves the EU on Friday 31stJanuary, a transition period will exist until 31stDecember 2020 where they will attempt to negotiate a free trade deal. Let’s just hope it doesn’t take as long to sign a trade deal as it did for them to get this far!
THINK LIKE AN ECONOMIST!
Q1: With reference to the article above, explain one way that a government could restrict the number of imports.
Q2. Analyse the impact that a free trade deal with the EU is likely to have on the UK balance of payments.
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