The government has announced that tariffs would be slashed to zero on 87% of imports should Britain crash out of the EU without a deal, while keeping higher border taxes on some sensitive products.

Here is how the plan might work.

What is a tariff?
Tariffs are border taxes charged on foreign imports. Importers pay them upon entry to the customs agency of the country or bloc imposing them – in Britain’s case HM Revenue & Customs.

Tariffs raise money for governments, but are primarily used to raise the price of foreign goods, protecting domestic producers from global competition.

Countries signed up to the World Trade Organization (WTO) must impose tariffs at the same level for all other WTO-member trading partners under the organisation’s “most favoured nation” rule – unless they secure alternative deals with particular countries or trading blocs.

The UK currently collects tariffs on goods arriving in Britain from outside the EU at rates set by Brussels. The money is passed on to the EU, minus a share to cover the cost of the collection.

The UK is poised to become an independent member of the WTO upon exiting the EU, which represents Britain at the WTO.

Ministers have reached agreement only with a handful of countries – including the Faroe Islands, Switzerland and Israel – to continue with the same trade deals the UK currently has access to under EU membership.

How will it work?
As a member, the UK benefits from tariff-free trade with the EU , which would end under a no-deal scenario. Ministers unilaterally dropping tariffs to 0% should help to mitigate this.

The government has said it will set the majority of import duties at 0% for as long as 12 months after a no-deal Brexit. During that time, the government will consult on setting a longer-term policy.

The measures would apply on imports from 11pm on 29 March 2019, if the UK leaves without a deal.

A reduced or zero rate of duty could may apply on a specific quota of goods, after which goods would attract a higher tariff.

For the 13% of goods imported to the UK where tariffs will apply, the government said there would be a mixture of tariffs and quotas designed to protect UK producers, mainly in the agricultural and manufacturing sectors.

Beef, lamb, pork, poultry and some dairy products will incur tariffs at or near the rates set by the EU. Among the rates are tariffs on beef at 53% of the EU rate, poultry at 60% and butter at 32%.

Tariffs will also be imposed on manufactured products at or near the EU rates to protect UK industry. Finished car tariffs will be set at 10.6% – similar to the 11.3% rate set by the EU.

The tariffs will not apply to goods from the Republic of Ireland crossing into Northern Ireland, with no new border checks and controls, raising the risk of smuggling.

Who benefits?
Higher tariffs drive up the cost of goods for consumers, as importers typically pass on these higher costs. Zero tariffs should mean consumers see EU goods stay at the same price. The price of some goods from abroad may also fall, in a boost to British consumers and potentially the UK economy – an argument that has been promoted repeatedly by Brexiters.

The government said imposing tariffs on sensitive products would help safeguard Britain’s strategic interests in agriculture and manufacturing. Zero tariffs will also help protect developing nations selling goods to Britain.

Who loses out?
Countries usually take much longer to draw up tariff schedules and don’t usually make wholesale changes. With only days before a potential no-deal scenario, time to prepare for the changes is tight, while the CBI has warned that businesses have not been consulted. The chance of unintended negative consequences is therefore heightened.

Economists warn that setting high tariffs can drive up consumer prices and stifle innovation that could benefit the economy, although they also caution that low tariffs could put jobs at risk as cheaper foreign goods become available.

Although the car industry has protections, other areas of manufacturing could be hit hard. Business groups also warn that there is no policy on tariffs that would likely come close to averting the damage caused by a no-deal Brexit.