Trade barrier
Encyclopedia
Trade barriers are government-induced restrictions on international trade
. The barriers can take many forms, including the following:
Most trade barriers work on the same principle: the imposition of some sort of cost
on trade that raises the price of the traded products
. If two or more nations repeatedly use trade barriers against each other, then a trade war
results.
Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency
, this can be explained by the theory of comparative advantage
. In theory, free trade
involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture
and steel
.
Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. The Commitment to Development Index
measures the effect that rich country trade policies actually have on the developing world.
Other trade barriers include differences in culture, customs, traditions, laws, language and currency.
trading barriers include farming produce industry
International trade
International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product...
. The barriers can take many forms, including the following:
- TariffTariffA tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s - Non-tariff barriers to tradeNon-tariff barriers to tradeNon-tariff barriers to trade are trade barriers that restrict imports but are not in the usual form of a tariff. Some common examples of NTB's are anti-dumping measures and countervailing duties, which, although they are called "non-tariff" barriers, have the effect of tariffs once they are...
- Import licenseImport licenseAn import license is a document issued by a national government authorizing the importation of certain goods into its territory. Import licenses are considered to be non-tariff barriers to trade when used as a way to discriminate against another country's goods in order to protect a domestic...
s - Export licenses
- Import quotaImport quotaAn import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time....
s - Subsidies
- Voluntary Export RestraintsVoluntary Export RestraintsA voluntary export restraint or voluntary export restriction is a government imposed limit on the quantity of goods that can be exported out of a country during a specified period of time....
- Local content requirements
- EmbargoEmbargoAn embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...
- Currency devaluationDevaluationDevaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
- Import license
Most trade barriers work on the same principle: the imposition of some sort of cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
on trade that raises the price of the traded products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
. If two or more nations repeatedly use trade barriers against each other, then a trade war
Trade war
A trade war refers to two or more states raising or creating tariffs or other trade barriers on each other in retaliation for other trade barriers...
results.
Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency
Efficiency (economics)
In economics, the term economic efficiency refers to the use of resources so as to maximize the production of goods and services. An economic system is said to be more efficient than another if it can provide more goods and services for society without using more resources...
, this can be explained by the theory of comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
. In theory, free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
and steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
.
Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. The Commitment to Development Index
Commitment to Development Index
The Commitment to Development Index , published annually by the Center for Global Development, ranks the world’s richest countries on their dedication to policies that benefit the five billion people living in poorer nations. Rich and poor countries are linked in many ways; thus the Index looks...
measures the effect that rich country trade policies actually have on the developing world.
Examples of free trade areas
- North American Free Trade AgreementNorth American Free Trade AgreementThe North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA) - South Asia Free Trade Agreement (SAFTA)
- European Free Trade AssociationEuropean Free Trade AssociationThe European Free Trade Association or EFTA is a free trade organisation between four European countries that operates parallel to, and is linked to, the European Union . EFTA was established on 3 May 1960 as a trade bloc-alternative for European states who were either unable to, or chose not to,...
- European UnionEuropean UnionThe European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
(EU) - Union of South American Nations
- New West PartnershipNew West PartnershipThe New West Partnership is set of agreements that integrate the Canadian provinces of Alberta, British Columbia and Saskatchewan. They were created on April 30, 2010.It is composed of:* the New West Partnership Trade Agreement ...
(An internal free-trade zone in Canada between Alberta, British Columbia, and Saskatchewan) - Gulf Cooperation Council common marketCooperation Council for the Arab States of the GulfThe Cooperation Council for the Arab States of the Gulf , also known as the Gulf Cooperation Council , is a political and economic union of the Arab states bordering the Persian Gulf and constituting the Arabian Peninsula, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates...
Other trade barriers include differences in culture, customs, traditions, laws, language and currency.
trading barriers include farming produce industry
See also
- Free tradeFree tradeUnder a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
- Customs unionCustoms unionA customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas...
- Agricultural policyAgricultural policyAgricultural policy describes a set of laws relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving a specific outcome in the domestic agricultural product markets...
- End-use certificateEnd-use certificateEnd-use certificate — The North American Free Trade Agreement Implementation Act mandates end-use requirements for wheat and barley imported from any country requiring end-use certificates for imports of U.S. produced commodities. Canada is the only nation that requires such certificates, and...