Transcript Trade Barriers

Trade Barriers
International Trade

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Involves the exchange of goods or services
between countries
This is described in terms of
– Exports: the goods and services sold to other
countries
– Imports: the goods or services bought from other
countries
Free Trade Vs. Trade Barriers
– Free Trade: Nothing hinders or gets in the
way from two nations trading with each
other.
– Trade Barriers: Trade is difficult because
things get in the way.
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There are costs and benefits related to free
trade as well as trade barriers.
Benefits of Free Trade
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When nations specialize and trade, total world
sales are increased
Companies can produce for foreign markets as
well as domestic markets
 This means there is potential for making more money
as there are more markets to sell goods or services in
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More variety of goods are available from all over
the world (not just from the home country)
Prices of goods are decreased through increased
global competition
Cons of Free Trade
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The domestic country can lose money because
more people are buying foreign goods (cheaper)
– Example: In the U.S., people might want to buy a
foreign automobile like a Honda or Toyota instead of
an American made car
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Less money will go into the domestic market
place and this can cause factories to be closed
and jobs to be eliminated
What are Trade Barriers?
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Trade barriers are things that hinder or get in the
way of trading
1. Cultural barriers: language, currency,
belief system.
2. Physical barriers: mountains, deserts,
canyons,etc.
3. Economic barriers: government rules that tax,
limit, or block international trade between countries
(tariff, quota, embargo)
3 Economic Trade Barriers
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The most common trade restrictions are:
1. tariffs—taxes on imported goods
2. quotas—limits on the quantity of goods that
are imported
3. embargos-- a complete ban on trading
between countries
What is a Tariff?
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A tariff is a tax put on goods imported from
other countries
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The effect of a tariff is to raise the price of the
imported product
– It makes imported goods more expensive so that
people are more likely to purchase products produced
in the home country
EX) The European Union removes tariffs between
member nations (cheaper goods), and imposes tariffs
on nonmembers (more expensive goods)
Quotas
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A quota is a limit on the amount of goods that can be
imported from another country
Putting a quota on a good creates a shortage, which
causes the price of the good to rise. Consumers are less
likely to buy this good because it’s now more expensive
than the good produced in the home country.
Quotas encourage people to buy domestic products,
rather than foreign goods (boosts country’s economy)
– EXAMPLE: Germany could put a quota on foreign
made shoes to 10,000,000 pairs a year. If Germans
buy 200,000,000 pairs of shoes each year, this would
leave most of the market to German producers.
Embargos
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Government orders that completely ban
trade with another country
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If necessary, the military actually sets up a
blockade to prevent movement of
merchant ships into and out of shipping
ports.
Embargos
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The embargo is the harshest type of trade barrier
and is usually enacted for political purposes to
hurt a country economically and thus undermine
the political leaders in charge.
– EXAMPLE: the United Kingdom has placed an
embargo on a Chinese toy-making company because
they were using lead-based paint in their toys. UK no
longer trades with this company.
– EXAMPLE: US placed an embargo on Cuba after the
Cuban Missile Crisis (still in effect today).
Benefits of Trade Barriers
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Most trade barriers are designed to prevent
imports from entering a country
Trade barriers provide many benefits:
– protect homeland industries from competition
– protect jobs
– help provide extra income for the government (boosts
economy)
– Increases the number of goods people can choose
from.
– Decreases the costs of these goods through increased
competition
Cons of Using Trade Barriers
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Tariffs increase the price of imported goods
Less competition from world markets
means there is an increase in the price.
The tax on imported goods is passed along
to the consumer so the price of imported
goods is higher.