What are the advantages & disadvantages of trade barriers?

Written by bert markgraf Google
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What are the advantages & disadvantages of trade barriers?
A common currency removes some financial trade barriers. (Comstock Images/Comstock/Getty Images)

International trade can benefit the countries that engage in it, but it also has disadvantages for specific groups that suffer job loss or the restructuring of their industries. Trade also opens the doors to abuses, such as selling goods below what they cost in their country of origin. Countries engaging in trade may lose the ability to manufacture strategic goods or the capability to grow food. Trade barriers seek to address these issues, but they also reduce the overall benefits of trade.

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Reduced Benefits

When countries allow their companies and citizens to engage freely in international trade, the marketplace ensures that they export those goods they can produce the most efficiently. Goods become less expensive overall, and the citizens of the countries participating in trade become wealthier. Trade barriers inhibit this free exchange of goods, resulting in goods being produced in locations where it is inefficient to produce them. These goods will cost more, reducing the wealth of the citizens who buy them.

Remedies for Abuse

When trade doesn't develop according to the goals of some of the participating governments, they may try to influence it to their benefit. Governments may keep their currency exchange rate artificially low, a tactic that makes their goods less expensive than they would normally be. Another strategy is to sell goods abroad more cheaply than at home, sometimes below cost, to gain market share and put competitors in other countries out of business. Trade barriers can block goods from countries that engage in these practices or add tariffs to their goods to make them more expensive. Such trade barriers reduce the benefit of trade. However, in this environment, benefits were already not being fully realised due to the abusive strategies introducing market distortions.

Creating Wealth in Emerging Economies

Most developed countries have diversified economies that generate wealth in many sectors, whether a particular sector trades freely or not. Developing countries generally depend on a few areas where they can genuinely compete and are efficient suppliers. Trade helps emerging economies develop, building on the sectors where they can compete to create wealth and economic growth. The World Trade Organization maintains that trade contributes to international peace, helps reduce the cost of living generally, raises incomes and creates jobs.

Economic Disruptions

Developed countries losing international markets because more-efficient suppliers have started to trade can severely disrupt their economies. Workers who have spent their lives in a particular industry may suddenly be redundant. Food, fuel, weapons and other strategic goods may suddenly be available at lower prices from suppliers in other countries. Trade barriers can address these dislocations, letting industries adjust slowly to the new reality without massive layoffs and dislocations. Temporary duties on certain foreign goods may buy time for such industries. Permanent subsidies may keep the production of strategic goods in the country.

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