Trade barriers are restrictions on imports and exports or in other words, on the overall international trade induced by a particular government to either protect its local economy or demonstrate its influence over the global economy. These barriers to trade are also obstacles to the promotion of free trade.
Countries with high income usually have fewer trade barriers than countries with middle income. Low-income countries typically have higher trade barriers. Nevertheless, although tariff is the most common type of trade barrier, there are other ways a government can elevate higher barriers to trading.
Tariffs as the Most Common Type of Trade Barrier
A tariff is a tax or duty on a particular class of imports or exports between two countries or sovereign states. Governments impose tariffs on imports for two essential reasons: to protect locally produced products and earn additional revenues from trade participation. Other governments impose high tariffs on imports coming from particular countries as a means of demonstrating its influence.
It is important to note that there are more specific arguments in favor of taxing import and export activities. Take note of the following purposes of tariffs: protect emerging local markets and emerging local industries and sectors from larger foreign businesses, protect against unfair competition due to dumping practices, promote economic growth, and sustain trading activities in the international market by creating a win-win situation.
Non-Tariff Types and Examples of Trade Barriers
Non-tariff trade barriers are restrictions on imports or exports imposed by a government through mechanisms and policies other than the simple imposition of trade taxes. Some of these trade barriers are systematic or institutional because they indirectly result in preventing or impeding trade.
The following are the common types and examples of non-tariff trade barriers:
1. Import and Export License: Governments use a licensing system on imports and at times, exports to regulate foreign trade. Licensing can take many forms, and the most common type is a general license that allows the importation or exportation of specific products. The specific purpose of a license centers on ensuring competitive pricing, monitor trade participation, and regulate the flow of products. It also serves as a mechanism for regulating the activities of foreign businesses that are importing their products to a local market and local businesses involved in the importation of foreign products.
2. Quotas: The licensing of imports and exports is related to quantitative restrictions or import and export quotas. Import quotas limit the volume of specified products entering a particular country. The system also limits the independence of businesses with regard to entering a foreign market. Export quotas restrict the volume of products leaving a country to guarantee supply in the local market, control and prevent the shortage of products that are strategically important for a country, and manipulate prices on the international level.
3. Voluntary Export Restraint: Two or more countries sometimes implement policies aimed at improving trade relationships between them. In certain instances, the government of an exporting country limits its exports through voluntary export restraints or VERs during a specified period to appease an importing country and deter it from imposing stricter or less flexible trade barriers. These VERs have been applied to several products ranging from textiles and footwear, construction materials such as steel, machine and equipment, and automobiles.
4. Government Subsidies: Another way governments can influence trade is through subsidies. This type of trade barrier involves providing local business organizations privileges such as tax breaks or government-funded financial aids to lower their operation and production costs. Lowered costs enabled these businesses to sell their products at a lower price. Essentially, the products produced by organizations that have enjoyed subsidies are more competitive than products imported from foreign business organizations.
5. Foreign Exchange Controls: The government-imposed controls on the purchase or sale of foreign currencies by residents or on the purchase or sale of local currencies by nonresidents are collectively called foreign exchange controls. Limiting the amount of foreign currency that a country can keep or banning specific types of foreign currencies from entering a country can indirectly constitute a trade barrier. Take note that trade between two or more countries also depends on the use of foreign currencies.
6. Trade Embargo: A trade embargo is a specific type of quotas that prohibit trade or more specifically, imports from other countries. Take note that an embargo is a type of economic sanction used by a government to demonstrate its influence and penalize another country believed to discredit an aspect of international laws and standards. Hence, an embargo is also a tool of foreign policy used by a larger and influential country to a smaller or less influential country. The tool can be used to coerce another country to observe international laws and standards or follow specific trade terms.
7. Safety and Quality Standards: Countries have specific laws aimed at protecting the interest of the consumers. These laws are extended to imported products. Certain governments require specific types of products such as agricultural produces and livestock products, drugs and cosmetics, and toys or merchandises for children, among others to undergo rigorous product testing to pass safety and/or quality standards. Although an indirect type of trade barrier, some countries use these requirements under the pretext of protecting consumer interest.