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The Benefits and Costs of Trade Barriers
Transcript of The Benefits and Costs of Trade Barriers
A2 Callie Collins
is a restriction on international trade put in place by a country's government (
is the removal of such barriers).Countries use trade barriers to promote "home-made" goods and industry as opposed to foreign goods. There are many forms of trade barriers...
Costs of Trade Barriers...
Benefits of Trade Barriers...
Governments place taxes on imported goods from foreign countries; these are called tariffs. This increases the price of imported goods, making domestically-produced goods appear cheaper, and become the obvious better choice. Governments use tariffs to protect domestic enterprises, and keep them in business!
Government subsidies are sums of money given to an industry to promote their services or products, and help them remain competitive. This most often makes their goods cheaper to produce than in foreign markets, and ultimately decreases the price of the good. Think of subsidies as the converse of tariffs: while tariffs increase the price of foreign goods, subsidies decrease the prices of domestic goods.
Embargos & Quotas
are political agreements (technically blockades) that limit a country's exportation or importation of goods. Similarly, countries place
on certain goods to limit the amount of that good that can be imported. Examples of these used in the US are the Nonimportation Act (1806) and the Embargo Act of 1807. These acts were made by Congress during the Napoleonic Era, in which France (under rule of Napoleon's Continental System) and Britain were very trade-restrictive at the time. The US Government put these trade barriers in place in response to the barriers of Britain and France.
Costs 1: This Means War!
All trade barriers, when put in place, can cause "trade wars". In trade wars, when one country administers a barrier, the other country involved retaliates, and so on and so forth. Trade wars can become ridiculously out of control, and possibly cause the downfall of an economy . An example of a minor trade war involving the US is the Smoot-Hawley tariff act of 1930, made directly before the Great Depression. After the US inputted this tariff, Canada and Great Britain responded with tariffs of their own. Some allude to the fact that this Act may have contributed to the Great Depression, but many claim this a falsity.
Costs 2: Surpluses and Infant Economies
Trade barriers, more specifically, limitations on imports, can lead to overproduction of goods. Especially in the case of agricultural enterprise, surpluses of goods can cause a major slow-down in the efficiency of an economy, and businesses can fall. In addition, these types of barriers (or any type) especially hurt underdeveloped and poor countries. If a country developing its economy is hampered by other countries' trade barriers, it makes it even harder to establish a stable economy and trade system.
Costs 3: Whiplash!
When a country administers a trade barrier that is meant to protect their own businesses, sometimes the barrier can backfire. Limitations on imports do protect domestic industry, but it also reduces consumer choice. In many cases, businesses take advantage of the trade barriers and make cheap goods. Because the consumers have no other choice but to buy the more available domestic goods, they are forced to buy low quality goods.
There are many costs of trade barriers, and while they are meant to aid a country's economy, oftentimes they end up hurting it. By decreasing the efficiency of an economy, creating unwanted surpluses, causing trade wars, backfiring, and much more, trade barriers aren't always a positive government interference.
Benefits 1: Shielding
Trade barriers are most commonly used to protect local industry. They are highly beneficial to underdeveloped countries, when
places limitations or tariffs on
imports, and the domestic industries use it wisely, because it gives the economy a chance to become self-sufficient and competitive in itself. The government is "shielding" its own businesses from powerful foreign industry. Young economies can benefit greatly from wisely placed trade barriers.
Benefits 2: Protectionism
Trade barriers, while used as shields for domestic industry, can be used to protect consumers as well. If a foreign country produces and exports goods that are unhealthy or of bad quality, the countries that import those goods can establish a trade barrier to protect their populace. For example, if Brazil exports tainted meat to the US, the US may put a trade barrier in place because of the health threat of that good. Goods may also be threatening to a country's religion or customs as well: for example, during a mutiny within a British-ruled Indian colony, the British started producing cartridges made of animal fat so that the Indians could not use the gun cartridges; it was against their religion to "eat" (bite) the kind of meat the cartridges were made with. In this type of instance, the Indians may place a barrier on this good to protect their religious interests.
The benefits of trade barriers are similarly inter-related: all in all, they are meant to protect either a country's businesses or their consumers. They are often helpful in developing stability and strength in economies, or protecting citizens from unwanted or low quality goods.