Introduction
Trade barriers are restrictions that governments impose on international trade with the aim of protecting local trade and industry or as retaliatory measure towards the targeted country for having earlier placed barriers of their own against the host country. They are designed to add another layer of cost or limitation on imports and exports so as to increase the cost of the targeted product hence its price and protect local industries and/or consumers in the process. Trade barriers come in several forms which include Tariffs, Non-Tariffs and Quotas. Tariffs or duties are the taxes imposed on imported goods or services. Non-tariff barriers are restrictions such as quality and content requirements for imported goods and subsidies for local producers that are appended on goods and services so as to restrict imports or to boost local producers. Quotas limit the quantity or restrict the monetary value of a certain type of goods that are imported into a country for a specific period of time.
This essay will evaluate trade barriers and why countries impose them. It will also discuss the effects of trade barriers on balance of trade, employment and economic growth. Lastly, it will evaluate the pros and cons of erecting trade barriers in the US.
Why Do Countries Impose Trade Barriers?
There are many reasons that prompt a country to impose trade barriers. Here are some of them: –
- To protect local industries – Some countries impose trade barriers such as tariffs and subsidies so as to protect the local industries (Staffin, 2015). Local industries producing similar products as the ones whose tariffs have increased get a chance to sell more of their product since consumers will turn to their cheaper product.
- To protect local consumers – If a country feels that a product is of low quality or has adverse health effects on consumers, it can impose tariffs or quotas on that product to limit its importation to the country (Zimmerman, 2019).
- To enhance revenue collection – Some countries increase/impose tariffs on imports in order to increase their revenue collecting avenues.
- As retaliation to the targeted country for having imposed barriers of their own or for unfair trade practices – The US and China are involved in a bitter trade war following accusations of unfair trade practices from both sides (Roberts, 2017).
Effects of Trade Barriers on Balance of Trade
Positive effects: –
- Tariffs and subsidies result in more production of local goods which helps promote local trade.
- Subsidies promote local primary sectors such as farming, fishing etc which lead to increased trading opportunities for local population (Heather & Hallman, 2017).
Negative effects: –
- Trade barriers such as tariffs and import quotas result in hiked prices of goods which reduces the quantity of goods available for trade leading to less trading opportunities.
- Retaliatory tariffs from a trade partner can lead to a trade war which hurts traders exporting goods to the target country. Their export prices will increase resulting in less volumes exported (Learner, 2018).
- Trade barriers that reduce the volume of exports can lead to an unhealthy balance of trade (less exports than imports) which will negatively affect the country’s economy.
Effects of Trade Barriers on Employment
Positive effects: –
- Tariffs and subsidies lead to increase in local production of goods and services which in turn lead to increase in employment opportunities.
- The resulting industries that pop-up when local sectors are thriving due to subsidies and tariffs also create employment opportunities for the local population (Lee & Swagel, 2017).
Negative effects: –
- The quality skills and expertise of local personnel is low due to reduced exposure from outside influence.
- Tariffs lead to reduction of imports which renders some of those dealing in the imported products jobless.
- Retaliatory tariffs reduce export volumes leading to job redundancies in the exporting sectors (Burton & Saelens, 2015).
Effects of Trade Barriers on Economy
Positive effects: –
- Tariffs are a source of revenue for a country’s economy.
- Increased local production due to subsidies and tariffs lead to increased local trade which helps in boosting the economy.
- Increased employment due to increase in local production also leads to local population having more money to spend which is a boost for the economy (Copeland, 2016).
Negative effects: –
- Tariffs may lead to reduction of imported goods which translates to less revenue collected for the economy.
- Reduced exports due to retaliatory tariffs leads to less foreign exchange reserves which are needed for economic growth.
- Trade wars due to trade barriers lead to hostile trading climate between the involved countries which affects the economy of both countries.
Pros and Cons of Erecting Trade Barriers in the US
The US has for the last four year been involved in a vicious trade war with China which started due to accusations by the US to China of unfair trade practices (Gould, 2018). The US has also been engaged in trade disputes with several other European and Latin American countries. Here are the effects of the Trade barriers that the country has been imposing: –
Pros.
- The gas-guzzler tax imposed by the US government on fuel-guzzling imported vehicles has led to increase in prices of four-wheel drive imported vehicles which has led consumers opting for locally made fuel guzzlers hence boosting local vehicle manufacturing industry (Pawar, 2017).
- Tariffs such as imported steel taxes have led to propping up of local steel mining industries which had become dormant. This has created more direct and indirect employment opportunities to locals in the mining and related industries.
- The 2013 ban on re-importation of military weapons by the Obama administration ensured that these weapons were kept out of the wrong hands thus enhancing national security (Burton & Saelens, 2015).
- Trade barriers such as the inspection of consumer of goods by the FDA (before approval for importation into the country) works to ensure that consumers are protected from substandard or harmful products.
Cons.
- Tariffs have raised prices of imported products such as steel products. The local steel factories in the US can’t sustain the supply of steel to industries which rely on steel as a raw material (Lee & Swagel, 2017). This has created a deficit in steel stocks in the US leading to hiked prices and subsequently, to low production of steel-based products such as vehicle manufacturing. This has led to decreased employment in those industries.
- Retaliatory tariffs from China have resulted to increase in prices of US products exported to that country, leading to reduced exports. Products such as mobile phones, industrial chemicals and rare metals have been affected by the trade war.
- Tariffs on consumer products such as washing machines, home and outdoor safety equipment and gadgets have only served to reduce local consumption of those products since locally made alternatives are too expensive and consumers have adopted a “wait and see attitude (Burton & Saelens, 2015)”.
- The increased Tariffs and the subsequent counter-tariffs from China have resulted in a widening of the trade deficit between the US and China and the US and other countries hence affecting the balance of trade (Learner, 2018).
Conclusion
Trade barriers are measures that a country puts in place to protect local industry from influx of imported goods. Even though trade barriers are a noble initiative by a country, the resultant benefits which includes more revenue, more employment, more local industries and more local trade are outweighed by the negative effects which include low quality goods, less employment in import sectors, higher prices for imported products and less forex generated for the economy.
References
Burton, F., & Saelens, F. (2015). Trade barriers and Japanese foreign direct investment in the colour television industry. Managerial and Decision Economics, 8(4), 285-293.
Copeland, B. (2016). Strategic interaction among nations: negotiable and non-negotiable trade barriers. Canadian Journal of Economics, 56(12), 84-108.
Gould, M. (2018). Has NAFTA Changed North American Trade? Economic Review-Federal Reserve Bank of Dallas, 34(7), 12-23.
Heather, N., & Hallman, G. (2017). Trade barriers. London: CABI.
Learner, E. (2018). Cross-section estimation of the effects of trade barriers. Empirical methods for international trade, 13, 51-82.
Lee, W., & Swagel, P. (2017). Trade barriers and trade flows across countries and industries. eview of Economics and Statistics, 79(3), 372-382.
Pawar, S. (2017). RADE PROTECTIONISM: OVERVIEW. National Journal of Research In Marketing, Finance & HRM, 56(9), 23.
Roberts, D. (2017). A framework for analyzing technical trade barriers in agricultural markets. Department of Agriculture, 56(7), 132-145.
Staffin, E. (2015). Trade Barrier or Trade Boon-A Critical Evaluation of Environmental Labeling and Its Role in the Greening of World Trade. Colum. J. Envtl, 78(15), 21-205.
Zimmerman, A. (2019). Impacts of services trade barriers: a study of the insurance industry. Journal of Business & Industrial Marketing, 56(12), 231-265.