Trade barriers can be described as government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. The intention of these instruments is to raise the price of the traded products by imposing a kind of cost in trade. For Paul Krugman and Maurice Obstfeld, the most common foreign trade barriers are government imposed measures and policies that restrict, control, and limit the international trade between countries by using restrictive instruments. These instruments can be in the form of tariffs, import quotas, export restraints, import licenses, subsidies, and nontariff barriers to trade.
In particular, if the government policy is to protect domestic infant industries from outside competition, then a protective tariff is considered as a tax levied when a good is imported. This tariff can be used as a tool for a trade policy to protect inefficient domestic industries. It is calculated as either a percentage of the value of the imported goods or as a fixed monetary amount per imported unit. The most popular method of calculating an average tariff rate is to divide total tariff revenues by the total value of imports. Import quotas are the limitations on the quantity of imports, and they can also be used as an effective tool for the trade policy. On the other hand, export restraints are the limitations on the quantity of exports imposed by the exporting country at the importing country’s request. Subsidies make domestic goods and services artificially competitive against imports.
Nontariff barriers are particularly difficult to measure. For Dominick Salvatore, some of the nontariff barriers, such as antidumping measures and countervailing duties, might be used under certain conditions, but they can have the same effect as a tariff and they can be used like a tariff. Therefore, even though the World Trade Organization (WTO) imposed very significant reduction in tariff use, the use of nontariff barriers increased. Furthermore, manufacturing or production requirements of goods, health and safety rules, sanitation, and environmental standards can be under the category of nontariff barriers, but these are necessary barriers to keep standards higher. Other barriers to trade include overly rigorous health inspections and difficult licensing requirements, investment barriers, lack of intellectual property protection, and service barriers that regulate international data flow and foreign data processing.
Protectionists And Free Trade Supporters
In international economic history, in the 1930s, there was a wave of protectionism because of economic depression and because of the devastating impacts of the two World Wars. After World War II, governments looked for ways to diminish the trade protectionism and settled on Bretton Woods institutions in 1944. Then, the idea of removal of trade barriers gradually institutionalized itself with the establishment of the General Agreement on Tariffs and Trade (GATT) in 1948. Assisting trade in moving freely, removing obstacles through negotiations, providing stability, and resolving disputes were among the responsibilities of GATT. The WTO came into being in 1995 through the multilateral trading system and replaced GATT. A key target for the member states is tariff reduction.
In the context of trade barriers, there are different extreme groups who are in favor of trade barriers and those who are against trade barriers. Protectionists, who are in favor of trade barriers, argue that trade barriers protect domestic industries and create job opportunities. In history, the infant-industries argument was the key argument for some protectionists, who claimed that new industries should be protected from competition by using trade barriers, and particularly tariffs and quotas, to protect domestic jobs from cheap foreign labor. In addition, the argument for keeping money at home claims that limiting imports will increase a country’s resources and sustain the balance of payments.
Economists generally support the idea that all these barriers decrease overall efficiency and reduce the welfare of consumers. Free trade supporters, who are against protectionism, defend the idea that free trade will increase the welfare of both customers and producers in the nation and region; therefore, all trade barriers should be gradually abolished, and free trade should be maintained between countries. For this group, trade barriers like tariffs and quotas raise domestic prices, reduce the welfare of domestic consumers, increase the welfare of domestic producers, and cause deadweight losses.
For free trade supporters, as one of the effective tools of trade barriers, a tariff can be perceived as a tax on goods produced abroad and sold domestically. Therefore, a tariff raises the price of imported goods above the world price by the amount of the tariff. In addition, a tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade. Kevin Lawler and Hamid Seddighi claim that, on the other hand, a quota on imports is a limit on the quantity of a good that can be produced abroad and sold domestically. Because the quota raises the domestic price above the world price, domestic buyers of the good are worse off, and domestic sellers of the good are better off. The quota can potentially cause a large deadweight loss, if such a mechanism, for example, lobbying activities, allocates import licenses. Because of the welfare effects, free trade supporters defend the idea of removal of all trade barriers, except perhaps those considered necessary for health or national security, Nevertheless, in real life, even those countries promoting free trade heavily subsidize certain industries.
Removing Trade Barriers
The key benefits of removing trade barriers are achieving general equilibrium approach to measuring economic benefits; removing agricultural subsidies globally; reducing trade barriers and agricultural subsidies, following the WTO’s Doha Round; removing intra-American trade barriers, following the Free Trade Area of the Americas (FTAA) negotiations; and removing developed country barriers to exports from least-developed countries.
On the other hand, the economic costs of removing trade barriers are dealing with high expenditure on negotiating and on supporting the policy; developing and disseminating a convincing case for reform; paying the private costs of adjustment for firms and workers as reform forces some industries to downsize or close to allow others to expand; and bearing the social costs of social safety schemes (such as unemployment payments plus training grants to build new skills so displaced workers can earn the same wage as before). Social and environmental benefits and costs of removing trade barriers can be reducing poverty through free trade, environmental damage due to excessive production as a result of free trade, causing climate change, and reducing conflicts and financial instability.
- Deardorff and R. M. Stern, Measurement of Nontariff Barriers (University of Michigan Press, 1998);
- F. Francois, “Assessing the Impact of Trade Policy on Labour Markets and Production,” in Methodological Tools for SIA, CEPII Working Paper No. 2003-19 (Centre d’Etudes Prospectives et d’Informations Internationales, 2003);
- International Business Publications, Global Foreign Trade Barriers to the U.S. Products and Services Exports Handbook (International Business Publications USA, 2007);
- Paul Krugman and Maurice Obstfeld, International Economic Theory and Policy (Addison-Wesley, 2003);
- Kevin Lawler and Hamid Seddighi, “International Economics: Theories, Themes and Debates,” Financial Times (January 2001);
- Matusz and D. Tarr, “Adjusting to Trade Policy Reform,” in Economic Policy Reform: The Second Stage, A. O. Krueger, ed. (University of Chicago Press, 2000);
- Azim M. Sadikov, “Border and Behind-the-Border Trade Barriers and Country Exports,” IMF Working Paper (International Monetary Fund, 2007);
- Dominick Salvatore, International Economics (Wiley, 2004). Lawrence J. White, Reducing the Barriers to International Trade in Accounting Services (AEI Press, 2001).
This example Trade Barriers Essay is published for educational and informational purposes only. If you need a custom essay or research paper on this topic please use our writing services. EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in.