Trade Barriers are any form of governmental or operational activity or restriction meant to discourage international trade.
- Import duties
- Import licenses
- Export licenses
- Import quotas
- Non-tariff barriers to trade
- Voluntary Export Restraints
The Economic Effect of Trade Barriers
If international trade is economically enriching, imposing barriers to such
Exchanges will prevent the nation from fully realizing the economic gains from trade and must reduce welfare. Protection of import-competing industries with tariffs, Quotas and non-tariff barriers can lead to an over-allocation of the nations’ scarce sesources in the protected sectors and an under-allocation of resources in the unprotected tradable goods industries. In the terms of the analogy of trade as a more efficient productive process used above, reducing the flow of imports will also reduce the flow of exports. Less output requires less input. Clearly, the exporting sector must lose as the protected import-competing activities gain.
But, more importantly, from this perspective the overall economy that consumed the imported goods must also lose because the more efficient production process — International trade — cannot be used to the optimal degree, and, thereby, will have generally increased the price and reduced the array of goods available to the consumer. Therefore, the ultimate economic cost of the trade barrier is not a transfer of well-being between sectors, but a permanent net loss to the whole economy arising from the barriers distortion toward the less efficient the use of the economy’s scarce resources.
Common arguments about trade barriers
Jobs Are Destroyed by Trade. It is asserted that trade has created jobs for foreign workers at the expense of American workers. It is more accurate to say that trade both creates and destroys jobs in the economy just as other market forces do. Economy-wide, trade creates jobs in industries that have comparative advantage and destroys jobs in industries that have a comparative disadvantage. In the process, the economy’s composition of employment changes, but according to economic theory there is no net loss of jobs due to trade.
Worker Wages Are Hurt by Trade. Many people believe that imports from countries with low wages have put downward pressure on the wages of native people. There is no doubt that international trade can have strong effects, good and bad, on the wages of native workers. The plight of the worker adversely affected by Imports comes quickly to mind. But it is also true that workers in export industries benefit from trade. Moreover, all workers are consumers and benefit from the expanded market choices and lower prices that trade brings.
National Security Is Threatened by Trade. Some industries, or at least components of some industries, are vital to national security and possibly may need to be insulated from the vicissitudes of international market forces.
Special Industries with Unique and Substantial Economic Potential will not mature without Protection from Trade. In theory, there can be
“Special” industries, which, if given government nurturing, including protection from international trade, will grow to generate large economic returns in the future. But without this public support these special industries will not emerge or will occur at too small a scale.
Unfair Competition Undermines the Benefits of Trade. Can trade be beneficial if all parties don’t abide by the same rules and regulations? Economic theory says it can. If another country chooses to give a subsidy to an exporting industry, buying those now-cheaper exports will hurt domestic industries that compete with those foreign goods, but it will benefit the domestic consumers who purchase them. Economists assert that the gain to consumers will typically exceed the loss to producers and workers. Therefore, from the standpoint of overall economic welfare, here defined as increased national income, an efficient economic response may be to accept the gain in real income offered by the subsidized foreign goods and facilitate the adjustment of the adversely affected home workers to more efficient endeavors.
Similarly, many economists see a possible economic advantage of buying foreign goods produced under different labor and environmental standards. They view differences in such standards as a basis for creating comparative advantage and realizing mutual gains from trade.