Types of Trade Barriers

Written by marisa swanson
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Types of Trade Barriers
Some countries might charge a tax that raises the price of imported grain to protect their local farmers. (bazaar trade of various bean image by Maria Brzostowska from Fotolia.com)

Trade barriers are either government regulations and/or taxes imposed on imports or exports that restrict free trade. Free trade is the concept of countries trading between one another based on what they have a competitive advantage producing. According to neoclassical economics, free trade would be beneficial both to consumers and profits for nations worldwide. When countries impose taxes, called duties or tarrifs, on trading they are most often trying to protect their own economy, which in the end creates higher prices and a distortion in the market.

Antidumping Duty

These taxes are levied (imposed) on imported goods that are priced below market value. The idea is to prevent other countries from being able to dump their excess goods on another economy. If country A has too much rice, it might want to send that rice over to China (knowing China is a big consumer of rice) and is willing to charge less for its rice than the Chinese rice growers charge. If country A does this, China might impose an antidumpy duty on the rice from country A to equalise the price of all rice on the market and keep its rice growers at a fair advantage.

Countervailing Duty

This is another tax on imports and like antidumping duties is considered a punitive tariff, meant to punish other countries who disrupt a foreign economy by underpricing local merchants. Some countries give a subsidy to certain areas of production. The U.S., for example, gives a subsidy to farmers. This helps farmers stay afloat and allows them to keep producing their crops in the event of a bad weather season or a bad economic time. Again subsidised goods may be offered at a lower price than unsubsidized goods, in which case the subsidised imports will be taxed.

Prohibitive and End-Use Tariffs

A prohibitive tariff happens when a country is already producing too much of a good and does not want any more of it imported to its country. It might add a tax that makes the imported good prices so high no one will buy it and it will prevent other countries from trying to trade it. End-use tariffs depend on what a good will be used for. For example, a good used for educational purposes might have a different tax than a good used commercially.

Nontariff Barriers (NTBs)

These trade barriers do not include the levying of taxes. Instead they are government regulations that impose quotas on the level of a certain good allowed in the country and are known as quantitative restrictions. Administrative regulations that disrupt trade are the requirement of documents, fees, permits, licenses and other forms of red tape that have to be produced for a country to allow an imported good in their territory. Technical regulations also offer requirements in the form of safety regulations, packaging and labelling.

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