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Trade Barriers
- What is trade barrier?
- Differentiate between an effective and an ineffective trade barrier
Overview
Introduction
Trade barrier is a government-imposed restraint on the flow of international goods or services. Those restraints are sometimes obvious, but are most often subtle and non-obvious. The most direct barrier to trade is an embargo [a blockade or political agreement that limits a foreign country’s ability to export or import]. Embargoes still exist, but they are difficult to enforce and are not common except in situations of war. The most common barrier to trade is a tariff–a tax on imports. Tariffs raise the price of imported goods relative to domestic goods (good produced at home).
Another common barrier to trade is a government subsidy to a particular domestic industry. Subsidies make those goods cheaper to produce than in foreign markets. This results in a lower domestic price. Both tariffs and subsidies raise the price of foreign goods relative to domestic goods, which reduces imports.
Barriers to trade are often called “protection” because their stated purpose is to shield or advance particular industries or segments of an economy. From an economic perspective, though, the costs to the economy of reducing its opportunities to trade almost always outweigh the benefits enjoyed by those who are protected.
