Trade Barriers and Applications to International Trade

Port Congestion Surcharge

Trade barriers are actions that are taken by government to increase the net export by restricting imports of certain products or services, increasing domestic production, domestic income and employment. The trade barriers could be beneficial to domestic firms by giving advantage to them while competition with foreign imports however it could be harmful to domestic customers. While domestics firms enjoys with higher sales, less competition, and more profits domestic consumers may experience with higher domestic prices by restricting imports of products. Tariffs, import quotas and non-tariff barriers are the most common trade barriers in today’s economy.

Tariffs are basically taxes added on imported products’ prices. With tariffs the price of the product will increase and it is aim to decrease the demand of that product in the domestic market. Tariffs are used most commonly as a trade barrier, because it is not only increasing the demand on local produces products, but it is also bringing a tax revenue to the government treasury. Tariffs are commonly imposed if domestic producers are able to convince government policy makers to compensate for foreign producers who unfairly gain a competitive advantage due to low foreign wages, dumping practices, or low production costs. However, tariffs are also imposed as a general means of limiting imports. That means that not only the local manufacturers will benefit from this trade barrier but also government will have additional tax revenue.

Import Quotas with this trade barrier movement put a restriction on the quantities products or services being imported. Quotas can be established simply based on first come first serve basis and once the total allowed quantity reached imports of that products won’t be allowed. Another alternate way to establish the quota is dividing the quota among the foreign producers with some criteria.

Non-tarrif barriers mainly include government regulations applied to specific products and services. Regulations such as technique used in production, safety of the produce, ingredients and other criteria.  These regulations would reflect the consumer choices in the domestic market and will give a chance to domestic producers to be more competitive then foreign producers with unique production techniques available only to domestic producers.

That being said non tariff barriers aim to protect the domestic consumers and doing that they may also give advantage to domestic production more competitive. .

In theory with unrestricted international trade both countries may benefit by engaging in a particular exchange, then why apply trade barriers?

Following are the main reasons for trade barriers,

  • Infant Industries:  trade barriers and restrictions tend to protect young and undeveloped industries that are not large enough to completive with more mature foreign markets and products. With governments help these industries have not been grown enough are given a chance to  create recognition , a brand name and develop grove in a healthy economical environment.  With Trade barriers young industries will be protected from foreign competition while they are developing.
  • Domestic Employment: Another major reason of trade barriers is protection of domestic employment. By putting the trade barriers in front  of the imported products governments are promoting domestic produced product or services. While demand on domestic products increases the domestic production and domestic employment increases along.
  • Unfair Trade: In some cases foreign products may be sold in the domestic economy at a price actually below of its actual cost as a result of foreign governments subsidize their producers. With This practice of dumping foreign products may take over the domestic market and give less change to domestic products compete. That will allow increase of foreign products in the domestic market.
  •  National Security : trade barriers also needed for protection of industries and companies those produce important products to the defense and security of the nations. The aim is to prevent the country from depending on these vital products or services to another nation.

Trade barriers prevent foreign producers from unfairly gaining a competitive advantage in the domestic economy and help to level the playing field. If it will be used fairly by the governments they could be great tools for international trade and control the trade deficit of a country.