7.2 Tariffs, quotas, and non-tariff barriers
2 min read•august 9, 2024
International trade policies shape global business through various barriers and restrictions. , , and directly impact the flow of goods across borders, affecting prices and market access. These measures can protect domestic industries but often lead to economic inefficiencies and trade disputes.
add complexity to international trade. Technical standards, health regulations, and administrative hurdles can significantly impact trade flows. While some measures protect consumers, others may serve as hidden protectionist tools, influencing global business strategies and market entry decisions.
Trade Barriers
Tariffs and Import Restrictions
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- Tariffs increase the price of imported goods by adding a tax or duty
- Ad valorem tariffs calculate the tax as a percentage of the good's value
- Specific tariffs charge a fixed amount per unit of the imported good
- Compound tariffs combine both ad valorem and elements
- Import quotas limit the quantity of a good that can be imported during a specific period
- refers to the economic benefit gained by those who obtain import licenses
- Embargoes completely prohibit the import of certain goods from specific countries
- Often implemented for political reasons or national security concerns (Cuba embargo)
Export Controls and Anti-Dumping Measures
- (VERs) occur when exporting countries limit their exports to avoid stricter import restrictions
- Typically negotiated between countries to address trade imbalances (Japan's auto exports to the US in the 1980s)
- combat the practice of selling goods in foreign markets below their fair market value
- can harm domestic producers in the importing country
- Anti-dumping investigations determine if dumping is occurring and calculate appropriate duties
Non-Tariff Barriers (NTBs)
Technical and Health-Related Barriers
- encompass various obstacles to trade beyond traditional tariffs
- Can be more challenging to identify and quantify than tariffs
- include product standards, labeling requirements, and certification processes
- May protect consumers but can also act as disguised trade barriers (EU restrictions on genetically modified foods)
- Sanitary and aim to protect human, animal, and plant health
- Can be legitimate safeguards or used as trade barriers (US ban on certain European cheeses due to pasteurization requirements)
Government Interventions and Subsidies
- involve complex customs procedures, import licensing, or documentation requirements
- Can delay or discourage trade by increasing costs and uncertainty
- provide financial support to domestic industries, making them more competitive against imports
- Agricultural subsidies in developed countries often impact global trade (EU Common Agricultural Policy)
- mandate that a certain percentage of a product be produced domestically
- Promotes domestic industry but can restrict trade (Brazil's local content requirements in the oil and gas sector)
Key Terms to Review (21)
Ad valorem tariff: An ad valorem tariff is a type of tax imposed on imported goods, calculated as a percentage of the value of the goods. This means that the amount of the tariff varies based on the price of the imported item, making it proportional to its worth. Ad valorem tariffs are commonly used as a way to regulate trade and protect domestic industries by increasing the cost of foreign products.
Administrative barriers: Administrative barriers refer to non-tariff measures implemented by governments that create obstacles for international trade and can limit the flow of goods and services across borders. These barriers often include complex regulations, stringent documentation requirements, and lengthy customs procedures, which can significantly hinder trade by increasing costs and time for businesses. Such barriers may be imposed under the guise of protecting health, safety, or the environment but can also be a means to favor domestic industries over foreign competitors.
Anti-dumping duties: Anti-dumping duties are tariffs imposed by a government on imported goods that are believed to be priced below fair market value, often as a result of foreign companies selling products at less than their production costs. These duties are intended to protect domestic industries from unfair competition and to level the playing field for local producers. When a country finds that foreign goods are being dumped in its market, it can impose these duties to mitigate the negative impact on local businesses.
Compound tariff: A compound tariff is a type of tariff that combines both a specific tariff and an ad valorem tariff. This means that it consists of a fixed charge per unit of imported goods plus a percentage of the value of those goods. By employing this dual structure, governments aim to generate revenue while also protecting domestic industries from foreign competition.
Dumping: Dumping is the practice of selling goods in a foreign market at a price lower than their normal value, often below the cost of production. This tactic can undermine local industries in the importing country and create unfair competition. While it might benefit consumers in the short term through lower prices, dumping raises concerns about market distortion and the potential for long-term damage to domestic producers.
Embargoes: An embargo is a government order that restricts or prohibits trade with a particular country or the exchange of specific goods. This can be a tool used for political leverage, aiming to influence the behavior of the targeted nation by causing economic hardship. Embargoes can be comprehensive, targeting all trade with a nation, or selective, affecting only certain goods, often in response to violations of international law or human rights abuses.
Free trade: Free trade is an economic policy that allows goods and services to be traded across international borders with minimal government interference, such as tariffs and quotas. This approach promotes competition and efficiency by enabling countries to specialize in the production of goods and services in which they have a comparative advantage, ultimately benefiting consumers through lower prices and greater variety. Free trade stands in contrast to protectionist measures, which aim to shield domestic industries from foreign competition.
Import Quota: An import quota is a government-imposed limit on the quantity of a specific good that can be imported into a country during a given time period. This trade restriction is used to protect domestic industries from foreign competition, stabilize prices, and control the volume of goods entering the market. Import quotas can also lead to increased prices for consumers and can affect international relations between trading partners.
Local Content Requirements: Local content requirements (LCRs) are regulations that mandate a certain percentage of a product to be produced or sourced domestically, often as a condition for companies to operate in a specific country. These requirements aim to promote local industries and create jobs by ensuring that a portion of goods, services, or components is sourced from within the host country rather than imported. LCRs can be seen as a non-tariff barrier to trade, affecting the competitive landscape and potentially leading to tensions between trading partners.
Non-tariff barriers: Non-tariff barriers are trade restrictions that countries use to control the amount of trade across their borders without imposing tariffs. These barriers can take various forms, including quotas, import licenses, standards and regulations, and customs procedures, often creating obstacles that impact international trade. They are important in discussions about globalization and protectionist policies, as they can influence how goods and services flow between nations.
Non-tariff barriers (NTBs): Non-tariff barriers (NTBs) are trade restrictions that countries use to control the amount of trade across their borders without imposing tariffs. These barriers can take various forms such as quotas, import licensing requirements, and standards for products that must be met before goods can be sold in a particular market. Unlike tariffs, which are straightforward taxes on imports, NTBs can be more subtle and often harder to identify, making them significant tools for protecting domestic industries from foreign competition.
Phytosanitary Measures: Phytosanitary measures are regulations and practices aimed at preventing the introduction and spread of pests and diseases that can harm plants and plant products. These measures are essential for maintaining plant health and ensuring safe trade by minimizing the risk of pest outbreaks across borders. They often include inspections, treatments, and quarantine protocols that are implemented by countries to protect their agricultural sectors.
Protectionism: Protectionism is an economic policy aimed at shielding a country's domestic industries from foreign competition by imposing barriers to trade. This can include tariffs, quotas, and various regulations that restrict imports and encourage local production. Protectionism often arises in response to globalization and populist sentiments, where citizens feel threatened by international trade practices that may disadvantage local workers and businesses.
Quota rent: Quota rent refers to the economic benefits or profits that accrue to producers or sellers when a quota restricts the supply of a product in the market. It arises because the limited availability leads to higher prices than would exist in a free market without such restrictions. This concept is particularly relevant in discussions of quotas, tariffs, and non-tariff barriers as it highlights how government-imposed limits can create surplus profits for certain industries while affecting overall market efficiency.
Quotas: Quotas are regulatory limits on the quantity of a specific product that can be imported or exported during a given timeframe. They are used to protect domestic industries by controlling foreign competition, influencing market prices, and ensuring a stable supply of goods within a country. Quotas can lead to higher prices for consumers, as they restrict supply, and are often implemented alongside tariffs to further regulate trade.
Sanitary measures: Sanitary measures refer to regulations and practices implemented to protect public health, primarily through the control of pests, diseases, and contamination in food and water. These measures play a crucial role in international trade, as they can serve as non-tariff barriers that countries use to restrict imports for health-related reasons, impacting tariffs and quotas.
Specific tariff: A specific tariff is a fixed fee imposed on a specific quantity of imported goods, rather than a percentage of the value of those goods. This type of tariff is often used to protect domestic industries by making imported products more expensive, thereby encouraging consumers to buy local alternatives. Specific tariffs provide certainty for both importers and government revenue since they are based on a set amount per unit.
Subsidies: Subsidies are financial assistance provided by the government to individuals, businesses, or industries to promote economic and social policy objectives. They are designed to lower the cost of goods and services, encourage production, and support specific sectors, often with the goal of addressing market failures or promoting public welfare.
Tariffs: Tariffs are taxes imposed by a government on imported goods, making them more expensive and less competitive compared to domestic products. They play a critical role in international trade by influencing the flow of goods between countries, protecting local industries, and generating revenue for governments. Tariffs can also spark trade disputes and influence global economic relations, reflecting broader themes such as globalization and domestic policy responses.
Technical barriers to trade: Technical barriers to trade refer to regulations and standards set by countries that can restrict imports or exports. These barriers often include quality standards, safety regulations, and packaging requirements that goods must meet before they can be sold in a market. While intended to protect consumers and ensure product quality, these barriers can sometimes be used as a form of protectionism, hindering international trade by creating obstacles for foreign producers.
Voluntary Export Restraints: Voluntary export restraints (VERs) are trade agreements between exporting and importing countries, where the exporter agrees to limit the quantity of goods exported to the importing country. This strategy is often used by exporting countries to avoid harsher trade restrictions like tariffs or quotas imposed by the importing nation. By voluntarily limiting exports, exporting countries can maintain access to markets while protecting their domestic industries from overwhelming competition.