GPS-SS7E9

Barriers to Trade

GPS: SS7E9

The student will explain how voluntary trade benefits buyers and sellers in Southern and Eastern Asia..

Enduring Understanding

The student will understand that the location, customs, beliefs, and laws of the society affect the production, distribution, and consumption of goods/services produced by the society.

Essential Question

How do tariffs, quotas, and embargo serve as barriers to trade?

Tariffs-A tariff is a tax placed on imported goods. Each country has separate tariff regulations. The five main types of tariffs include revenue, ad valorem, specific, prohibitive and protective.

Tariffs

revenue tariff

• increases government funds. For example, countries that do not grow bananas may create a tariff on importing bananas.

• means that the tariff applies to a percentage of the import's value such as a set number of cents on every dollar of value.

specific tariff

• means that the tariff is not concerned with the estimated value of the imported goods, but rather is based on specific amount of the goods.

prohibitive tariff

is one that is such as high cost that it keeps the item from being imported

Protective tariffs

is used to raise the price of imported goods as a protective measure against the competition from foreign markets.

Non-tariff

A form of restrictive trade where barriers to trade are set up and take a form other than a tariff. Nontariff barriers include quotas, levies, embargoes, sanctions and other restrictions, and are frequently used by large and developed economies.

Quotas- are limits as to how much of a product can be imported or exported to or from a country.

Import Quotas

Unilateral quotas

• These are quotas set by a country without pervious consultation or negotiation with others.

Negotiated bilateral or multilateral quotas

• in this case, the importing country, after negotiations with the government of each exporting country, or with groups of its exporters, allots shares of the quota to each country.

• With a multilateral quota, the restriction is placed on the total amount of imports only, with no restriction as to source.

Tariffs quotas

• a country allows a certain amount of a product to enter at a given rate of import duty or even duty free. Any excess amount is subjected to a much higher rate of duty.

Types of trade barriers

Embargos- a political move by one country against another. While the manifestation of a particular trade embargo can have any number of aspects, generally speaking, the country imposing the trade embargo will prohibit most or all people in their country from doing business with the country against which the trade embargo is imposed. It may even mean that citizens from the imposing country are banned from visiting the prohibited country.

Embargo

The Burmese Freedom and Democracy Act of 2003, which took effect on Aug. 28, 2003, effectively banned the importation into the US of any Burmese product, including all precious stones, pearls, jewelry and mineral specimens are now prohibited imports.

U.S. President Bush shakes hands with Ambassador Raminder Jassal, Charge D'affaires of India (R) after the signing of the United States-India Peaceful Atomic Energy Cooperation Act in the East Room of the White House, Dec. 18, 2006. Act lifted 30 year old nuclear embargo against India.

Natural barriers to trade

Common arguments about trade barriers

Workers wages are hurt by trade

National security is threatened by trade.

Special industries with unique and substantial economic potential will not mature without protection from trade.

Unfair competition undermines the benefits of trade.

Benefits of trade barriers

They increase the competitivness of domestic producers both domestically and on foreign markets.

They also raise money for the government in terms of revenue, which can be used for government spending.

They also improve the balance of payments position by decreasing imports as they become more expensive and less attractive to purchase.

ad valorem tariff

Jobs are destroyed by trade