Barriers to Trade

BARRIERS TO TRADE

SSEIN2a: Define trade barriers as tariffs, quotas, embargoes, standards, and subsidies.

SSEIN2b: Identify costs and benefits of trade barriers over time

SSEIN2c: List specific examples of trade barriers.

WHAT ARE TRADE BARRIERS? Any form of governmental or operational

activity or restriction that renders importation of some goods into a country difficult or impossible.

TARIFF’S Definition: a tax placed on imports to

increase their price in the domestic market.

Two types:Protective tariff – designed to make

domestic products cheaper than their foreign made rivals.

Revenue tariff – generates revenue for the government without making the product more expensive than the same domestic products.

TARIFF’S: Costs:

Price of goods increases.Reduced competitionHidden costs of political and cross-

industry retaliation.

BENEFITS OF TARIFF’S Protect young domestic industries from

foreign competition. Protect aging and inefficient domestic

industries from foreign competition. To protect domestic companies from

“dumping” from foreign companies or governments.

EXAMPLES OF TARIFF’S In the year 2000, tariff’s were increased 8-

30% on imported steel. Goal was to save jobs in the U.S. steel industry.

Tariff’s are placed on imported cars depending on the value of the car.

QUOTA Definition: A specific number or proportion of

a good allowed to be imported into the country.

QUOTA: COSTS AND BENEFITS Costs of Quota’s

ShortagesHigher prices

Benefits of Quota’sDomestic job protectionDomestic industry protection

QUOTA’S: EXAMPLES In 1981, President Reagan put a limit on the

number of imported cars that foreign car produces could bring into the United States. Consumers had fewer cars to choose from Prices were higher than they would have been

without the quota.

Sugar quota’s have been in effect for 50+ years Limits the amount of imported sugar Protects U.S. sugar industry.

EMBARGO’S Definition:

A government prohibition against the shipment of certain products to a particular country for economic or political reasons.

EMBARGO: COST/BENEFITS Costs:

Loss of importsHuman rights

BenefitsPolitical leverageIncrease in substitutes

EMBARGO Example: Cuba embargo began in 1963 and

still continues today. No imports or exports allowed No free travel between the countries

STANDARDS Definition:

Laws that promote the health and safety of products and services within the country.

STANDARDS: COST/BENEFIT Costs:

Increased cost of inputs Increased pricesDecreased competition

Benefits:Safer productsHigher quality productsRecourse against products not made to

specifications.

STANDARDSExamples:

Cars must have seat beltsToys cannot be made with lead

paint.

SUBSIDIES Definition: a government payment to

an individual, business, or other group to encourage or protect a certain type of economic activity.

SUBSIDIES: COSTS/BENEFITS Costs:

Protects inefficient industriesWhen repealed, costs go up and

producers leave the market

Benefits:Lowers the cost of productionEncourages current producers to

remain in the market and new producers to enter

SUBSIDIES Examples:

Dairy farmers receive subsidies to help them stay in business.

Research and production of biofuels