Ever since President Donald Trump assumed office, his favorite word when it comes to trade is tariffs. We already see the effects of tariffs on global trade, but in this article, I would like also to explore the other barriers when it comes to trade both official and unofficial. These are also the tools that the president can use if he finds tariffs not effective enough. Frankly, some of them are much harsher than tariffs since they limit on imports completely.
Official Trade Barriers
1. Quotas
Basically, a quota is a limit on quantity determined for specific goods where quotas have the potential to increase the price of an item or create shortages in the market.
Some examples are absolute quotas from Argentine, Brazil, South Korea on steel and aluminum products. Once a certain quota is reached, no matter how much a country would like to pay more money (like tariffs) they cannot send that item to the U.S. In that sense, quotas are more restrictive than tariffs.
2. Embargoes
An embargo is more restrictive than both tariffs and quotas since it bans importing from a specific country. These are usually used for political reasons to inflict pain on a country.
Currently, the U.S. has embargoes in place for Cuba, Iran, North Korea and Syria. There are also sanctions which are used for specific countries and regions like Russia.
Non-Official Trade Barriers
There are also tools that governments use especially when there is a trade war between two countries. One clear example is non-official trade barriers that are used between U.S. and China. Below are some examples.
1. Administrative Hurdles
The U.S. needs and imports large amounts of rare earth minerals (17 of them) for its defense and high-tech industries and China is one of the main suppliers of them. During the trade war with China, the U.S. complained that China was making exporting these items to the U.S. more difficult and asked for easing the process. So, this is a powerful tool that provides leverage during trade negotiations with other countries.
2. Inspections
When there is a trade war between countries, usually trade does not flow as usual. Certain items are flagged and go through extensive inspections, and with this, both exporting and importing becomes costlier and more time-consuming.
3. Import Licensing
Certain products may be subject to importing licenses where a certain government may favor certain industries by limiting these in order to protect local factories or protect their population, especially for food imports.
4. Bureaucratic Regulations
The countries that bureaucratic regulations in place, typically have complex regulatory environments where it’s hard to navigate the system with delays happening and unexpected costs arising.
Trade is complex and barriers complicate trade further.
In short, trade is already a complex system with many parties involved. By introducing additional barriers like the ones outlined above, the advantages of free trade making goods more affordable diminish. I explored this in greater detail in one of my old articles detailing Ricardo’s trade theory.
