Describe the types of trade barriers governments often use to protect their local industries.  Discuss the arguments for and against trade protection

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pohnpei397 eNotes educator| Certified Educator

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The best-known type of trade barrier is a tariff.  A tariff is a tax on imported goods that enter a country. When imports enter the country, they are taxed.  This raises their prices and makes them more expensive relative to domestic goods. Because domestic goods are now cheaper relative to the imports, people will buy more of the domestic goods and fewer of the imports.

A second type of trade barrier is a quota.  In this case, the government sets a limit on how many of a certain kind of good can enter their country.  For example, the US government could conceivably place a quota on cars from Japan, saying that only X number of such cars could be imported. This would mean that people would be forced to buy American (or at least non-Japanese) cars because there would not be as many Japanese cars as people might want.

The most drastic sort of a quota is an embargo.  An embargo is a total ban on trade with a certain country. Embargos are generally not used for economic purposes, though.  Countries usually do not place embargos on other countries to protect their own economies. Instead, they do so for political reasons.

Countries can also impose trade barriers that are more subtle. These are barriers that do not necessarily look like they are created to impede trade.  The most common of these is regulation of various aspects of the goods that people want to import.  For example, various countries have banned or limited American beef imports. They say they are doing this out of fear of mad cow disease.  This restricts trade, but it at least looks like it is being done for other reasons.

Another subtle trade barrier is a subsidy to a domestic company or industry. When governments subsidize companies in their own countries, they lower those companies’ costs and make them able to produce goods and services more cheaply.  This makes it harder for imports to compete and reduces trade. It does this even though it does not appear to be a trade barrier at first glance.

Thus, there are many types of trade barriers, ranging from obvious ones like embargos or tariffs to less obvious ones like safety regulations and subsidies.