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Trade Barriers Written by Prateek Agarwal on July 28, 2019 INTELLIGENT ECONOMIST Economic Theory & News No country however rich or large can make imports. However, in retaliation trade partners can everything it needs or has all the resources it do the same and increase prices for exports. requires for its manufacturing industries. Yet, Thus, this using this rationale, governments some countries are against free trade. They believe won't necessarily fix the problem, if domestically that free trade is bad for their economies and hurts produced goods aren't competitive or are not growth and employment. So, what are the high-quality. Countries will also spend less on arguments used to impose trade barriers? imports if their exports go down. International trade enables countries to have 3. To protect "infant industries" access to products which they are unable to Countries want to give newly developing produce. For example, small nations in the Middle industries (known as infant industries) time to East have large deposits of oil. They have become grow and become competitive. This is a reasonable very wealthy from those oil deposits. However, argument for imposing trade barriers. even with all that money, they don't manufacture However, in some cases, government everything themselves. Instead, they exchange protection never ends. These industries become their oil for motor cars and airplanes which are competitive only because the government has built by countries like the United States, Japan, and given the benefit of the trade barrier. Germany. These countries have little or no oil 4. Protection from "dumping" deposits of their own. Dumping is when an importer sells products There are four types of trade barriers that can at a below-average cost of production. be implemented by countries. They are Voluntary Dumping is hard to prove, yet nonetheless, Export Restraints, Regulatory Barriers, Anti- sometimes countries impose anti-dumping duties Dumping Duties, and Subsidies. We covered just because it is competing against a locally Tariffs and Quotas in our previous posts in great manufactured product. detail. 5. To earn more revenue Governments gain extra revenue from tariffs Reasons Governments Are For Trade Barriers (which is a tax on imports). The tariff may be in 1. To protect domestic jobs from "cheap" the form of a specific or ad valorem tax. Tariffs labor abroad raise the price of the imported good and lower Wages in industrialized countries are higher their consumption. because their output per worker is higher than the Types of Trade Barriers output per worker in developing countries. The 1. Voluntary Export Restraints (VERs) higher wages reflect higher productivity. They are agreements between an exporting Otherwise, there is no comparative advantage in and an importing country that limits the quantity producing that product, or the owners would have businesses can export during a period. Even to reduce wages to match productivity. though the term says the agreement is voluntary, it For example, the U.S. has import tariffs on is usually not. By reducing the quantity exported, sugar, making imported sugar more expensive than the exporting country can increase prices and total domestically-grown sugar. Thus, people in the US revenue. are going to buy US-produced sugar, which keeps 2. Regulatory Barriers money in the wallets of US sugar producers and Any "legal" barriers that try to restrict farmers. imports. These include things like safety standards, 2. To improve a trade deficit pollution standards, product standards that specify Trade barriers make imports more expensive, that the product should meet or exceed standards and as a result, they also decrease the demand for set by the local government. For example, car manufacturers often have to pass certain safety ratings to sell the car in the importing country. 3. Anti-Dumping Duties Dumping happens when the exporting producer sells goods below cost. The government then can impose a duty on the good till the World Trade Organization decides the issue. However, firms often claim that the good is produced below the cost to buy more time for themselves. It is often difficult to determine the actual costs of the firm. 4. Subsidies Governments offer subsidies to help make firms more competitive by lowering their costs. 5. Tariffs A tariff is a type of trade barrier that acts as a tax on imports. The tariff may be in the form of a specific or ad valorem tax. Tariffs raise the price of the imported good to lowers their consumption. This price increase encourages consumers to pick the local option. 6. Quotas A quota, a type of trade barrier, is a restriction on the quantity that can import into a country. Quotas and Tariffs are effectively the same except that governments collect revenue from tariffs, while exporting firms can collect extra revenue from quotas. This increases the firm's export revenues. https://www.intelligenteconomist.com /trade- barriers/ 2020-7-2 6. (5) Find an example of one trade barrier from the list and write a paragraph about how it works. Who benefits? Who pays