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Trade Barriers
Trade Barrier – A law passed or action taken by
the government of a country with the intention of
restricting the flow of goods and services between
its country and another.
Subsidies – A transfer payment given by a
government to their exporting companies
Benefits
Protects domestic
industries without putting
other trade barriers in
place - protects jobs
Makes US goods price-
competitive overseas
Costs
Requires higher taxes
May limit
entrepreneurship and
innovation
Allows for inefficient use
of resources
Trade Barriers
Subsidies
Trade Barriers
Tariff – A tax placed on imported goods
Benefits
Provides revenue to the
importing country
Protects the domestic
producers - makes their
products more
competitive
Protects domestic jobs
Costs
Limits competition
Higher prices for
consumers
May lower profits, raise
unemployment, hurt the
economy
Allows inefficient use of
resources
Trade Barriers
Tariff
Quota – A limit on the quantity of a
good imported into a country
Benefits
Protects the domestic
producers - limits
competition
May increase domestic
companies’ profits
Protects domestic jobs
Costs
Limits competition
Higher prices for
consumers
May lower profits, raise
unemployment, & hurt
the economy
Allows inefficient use of
resources
Trade Barriers
Quota
Trade Barriers
Embargo – A complete ban on trade with a
particular country due to political disputes
Benefits
Provides a diplomatic tool
without war
Costs
Denies consumers certain
products or tourism
Curtails US companies’
trade opportunities
May allow foreign
companies access to the
embargoed market
Trade Barriers
Embargo
Trade Barriers
Standards – Specific guidelines a good
must meet before it can be imported
Benefits
Protects American
consumers from possible
health/safety dangers
Protects US manufacturers
from unfair competition
from inferior goods
Costs
Raises the cost of imports
Increases government
enforcement costs
May limit availability of
imports
Trade Barriers
Standards
Trade Barriers
Trade Barrier Examples
2002 U.S. Tariffs on Steel
2005 Quotas on China’s Textiles
U.S. Embargo against Cuba
USDA Labeling Standards
U.S. Agricultural Subsidies
Trading Blocs
NAFTA - North American Free Trade Agreement
It was established to promote
barrier free trade between Canada,
the United States, and Mexico.
$223.5 $579.6
$336.89$344.5
$5.5
$28.8
$113.6
$150.6
$53.5
$52.1
$1.2
$3.6
Trading Blocs
NAFTA - North American Free Trade Agreement
EU - European Union
Allows for free movement of goods and workers across country borders. 18 EU countries use theEuro as their currency to further reduce obstacles to trade.
28 countries in the EU
Trading Blocs
NAFTA - North American Free Trade Agreement
EU - European Union
ASEAN - Association of South East Asian Nations
Includes 10 countries in SE Asia
Established to promote economicgrowth, free trade, and economic collaboration betweenmember nations
Provides ASEAN countries with leverage in trading with China
Trading Blocs
NAFTA - North American Free Trade Agreement
EU - European Union
ASEAN - Association of South East
Asian Nations
TPP – Trans-Pacific Partnership
Assignments:
Arguments for protectionism
1 Protect infant industries
2 Protect domestic employment
3 Protect national security
4 Protect workers in developing countries from unfair
labor practices
5 Protect the environment in developing countries
1. Define the argument for/against free trade
2. Explain the argument from the protectionist
and free trader perspective
Protectionism
Protect infant industries
Pro Use trade barriers when a new industry is in the early stages of
development
Unless an industry can grow and establish economies of scale (high
output with low cost per unit), it will likely not survive in
competition with established industries in other countries
Free traders Hard to accurately predicting which industries will “grow up” and
be competitive
“Once protected – Always protected”
Protectionism
Protect domestic employment
Pro Protect workers from becoming unemployed due to competition from
products made by workers in developing countries who usually work
for much lower wages and benefits
Free traders Protectionism increases prices for consumers
Free trade and efficient production usually leads to new industries
and jobs within those new industries
Using comparative advantage (specialize and trade), enriches workers
and they become consumers of international goods as well as
producers
Protectionism
National Security
Both sides agree some protections are necessary
Pro
Important to maintain industries critical to the country’s
national security even when the industry cannot efficiently
compete at the international level
Free traders
Potential for abuse by less-than-essential industries
• Steel production
• Ship building
• Weapons production
• Aircraft industry
• Automobile industry
Protectionism
Protect workers in developing countries
from unfair labor practices
Pro (developing nations) Despite relatively bad working conditions, developing
country workers would lack jobs entirely if unable to produce and sell goods abroad
Over time, workers will become more established will demand better working conditions
Oppose (developed nations)
Limit the purchase of goods by people in the developed
country
Inefficient use of resources
Protectionism
Protect the environment
Pro (developing nations)
Nations must be able to produce goods without being held to
developed nations’ environmental standards because they
would be uncompetitive
As countries increase growth eventually the environment
will become cleaner
Oppose (developed nations)
Limit the purchase of goods by people in the developed
country
Inefficient use of resources