Trade barriers are protectionist measures used by governments to favour domestic industry and workers. The most common trade barriers are tariffs, quotas and subsidies. Tariffs refer to taxes levied on imports and exports. Quotas define an allowable quantity of a good that can be legally imported. Subsidies are financial assistance that a government provides to business. While trade barriers can be beneficial, opponents of protectionism argue that trade barriers distort free markets and reduce efficiency. The end result can be higher consumer prices, restricted economic and technological growth, trade wars and increased crime.
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Damage to Consumers
Tariffs often amount to a tax on consumers, as manufacturers add the cost of the tax to the price of their product. Frequently, the tax can be regressive, hurting the poorest consumers the most. Trade barriers on food, clothing, and raw materials raise prices on staple necessities, which make up the largest expense for those with lower incomes. Often tariffs have the effect of inflating all related prices, not only those of the imported good, as domestic producers raise prices due to reduced competitive pressures.
Restriction of Economic Growth
Opponents of protectionism argue that trade barriers restrict the flow of capital and inhibit economic growth. In contrast, free trade takes advantage of the principle of comparative advantage, allowing each country to specialise in goods and services in which it has the competitive advantage. By allowing the market to produce goods in the most efficient way possible, which some claim to be free trade, proponents argue that costs and prices are kept low for all participants, producing benefits through supply chains.
Discouragement of Innovation and Efficiency
Some argue that trade barriers insulate inefficient producers from competition, and, as a consequence, discourage the innovation that contributes to future growth. Also, by favouring some manufacturers rather than the free market, protectionist measures can force economic activity toward a less efficient or lower quality producer. In the process, the protectionist state becomes less competitive in the global economy. Tariffs and quotas on technological goods, including computers, increase prices and reduce access to productive technologies. As a result, businesses outside the targeted sectors can be placed at a competitive disadvantage with respect to the global market.
Encouragement of Trade Wars
Trade wars are often the direct result of protectionist policies. A trade war occurs when a country raises trade barriers in retaliation for another's trade barriers. Each country involved in the trade war thereby loses some access to the market of the other. As a result, trade and economic activity decrease. Trade wars can spread quickly beyond the original sector of conflict and can encourage economic nationalism with economic policies increasingly dictated by political interests.
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