What are Trade Barriers?

Published by Thomas Herold in Economics, Laws & Regulations, Trading

'Trade Barriers' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Trade barriers are those restrictions to free international and bilateral trade which governments throw up in an effort to protect domestic industries and businesses. These government created restrictions often take a number of different forms. Among them are tariffs, import quotas, import licenses, subsidies, embargoes, voluntary export restraints, local product requirements, currency devaluations, and outright trade restrictions. Whatever forms the barriers to trade actually take, they generally work off of similar principles. The idea is that a heavy cost be imposed on trade which increases the cost of the traded (and especially imported) goods, services, and capital. When two or more countries continuously employ barriers to trade one against the other, a trade war often becomes the end result.

The majority of economists mostly concur with the idea that such economic barriers are harmful to both countries which impose them and those which experience their direct consequences. They lower all around economic efficiency and harm or distort national comparative advantages. Free trade is the concept of removing all such trade barriers besides those which are considered mission critical to national security. The truth is that even the biggest champions of free trade in the modern world, such as the United States and Great Britain, engage in subsidies of favorite industries like steel and agriculture as they deem it to be expedient for these critical domestic industries’ long term survival.

While there are many different types of trade barriers which countries can erect, the most typically utilized ones are tariffs, subsidies, duties, quotas, and trade embargoes. While the concept of free trade is a popular catch phrase in the post-modern world, the reality on the ground is that no country fully practices such free trade. In fact, all countries are guilty of employing some types of trade barriers for their own exclusive benefit and those of their industries and companies.

Tariffs are probably the most common type of barrier to trade. This means that a company places taxes on certain goods which are imported into the nation via its ports, railroads, or airports. Though it is unusual, tariffs could also be placed on national exports. Tariffs throughout history have always been an important government revenue source. They were easy to enforce and collect since ships had to come in through the closely government monitored ports.

Subsidies are yet another typical kind of barrier to trade. They are generally set up to safeguard and encourage important domestic industries and companies. They can also be utilized to ensure that important critical goods and services are available at a price which residents can afford. It often makes the imports uncompetitive as a byproduct. Food crops are often heavily subsidized so that the population can comfortably afford a consistent food supply at prices they can manage. Steel is another product that often benefits from heavy subsidies. This is because many nations deem domestic steel supplies to be vital to their national economic interests. Steel supplies which are domestically available are essential in wartime when shipping lanes may be interdicted.

Probably the most extreme version of trade barriers is embargoes. These more or less outlaw the export or import of any goods or services with a particular nation. This is typically enacted to punish an offending country or to cause them to make radical internal political changes as a result of the pain of a weakening economy. Throughout much of human history, embargoes were war tactics and led to the outbreak of official war. Today these barriers to trade are not a cause of wars.

There are several important trade bodies globally today which work to reduce and eliminate barriers to trade of different countries. The broadest and most effective of these is the WTO World Trade Organization which enacts and enforces stringent rules on member states regarding the legality of tariffs and other trade barriers. This has driven some countries and economic blocks to employ other trade barriers than tariffs. The EU simply bans the importation of most any generically modified product. This outlaw bans the overwhelming majority of American food products in practice. The WTO has gotten wise to this tactic and begun to investigate these types of barriers too.

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The term 'Trade Barriers' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.