Trade Barriers

Trade barriers are limitations or hindrances established by governments to control or restrict the movement of goods and services across international borders. These barriers can take the form of tariffs, quotas, import and export restrictions, or other measures aimed at safeguarding domestic industries, ensuring economic stability, or fulfilling specific policy goals. Below are some examples of trade barriers that countries have implemented in the past, along with the consequences that followed:

Definition: A tax imposed on imports. This tax applies to goods coming from foreign countries and is typically used as a tool of trade and foreign policy to penalize adversaries or support allies and domestic producers.

Why do countries use them? To make foreign products more expensive than domestically produced ones, thereby encouraging consumers to purchase from local producers instead of imports.

How are they used? In 2018, the United States announced that Canada, Mexico, and the European Union would face tariffs of 25 percent on steel and 10 percent on aluminum to support its manufacturing sector. In retaliation, Mexico imposed tariffs of up to 25 percent on U.S. dairy products, resulting in over $1 billion in lost revenue for U.S. dairy farmers, despite receiving $127 million in aid.

Definition: A strict limit on the quantity of a product that a country can import. Instead of halting all imports beyond a specified amount, a quota may impose a tariff on every product exceeding a certain threshold.

Why do countries use them? Primarily to protect domestic manufacturing. Quotas do not generate government revenue on their own, so they are often paired with tariffs.

How are they used? After the United States signed the North American Free Trade Agreement, a 33 percent tariff on Mexican corn brooms was reduced to 22 percent. This negatively impacted the U.S. broom manufacturing industry, leading the government to implement a quota. Any brooms exceeding the 2.6 million quota would incur the original 33 percent tariff. This resulted in escalating tariffs between the U.S. and Mexico until a special panel determined that the corn broom quota violated previously agreed free trade rules, leading President Bill Clinton to remove the quota later that year.

Definition: A broad term encompassing various government actions aimed at financially supporting an industry. Subsidies often involve direct financial assistance to companies in specific sectors, as well as tax breaks or other financial advantages that benefit domestic industries at the expense of foreign competitors.

Why do countries use them? To assist struggling domestic industries or stabilize prices.

How are they used? In the 1970s, the U.S. dairy industry faced dangerously low prices, prompting the government to allocate $2 billion in subsidies to support it. This led to an oversupply of milk, as farmers increased production. The government then purchased the surplus and processed it into other products, resulting in a stockpile of “government cheese” weighing five hundred million pounds across thirty-five states.

Definition: The deliberate action by a country to print more money or employ other tactics to alter the exchange rate of its currency.

Why do we use it? To promote exports by making domestic products cheaper in foreign currencies, particularly in U.S. dollars, which is the most widely accepted currency.

How is it used? After World War II, Japan experienced rapid economic growth, but by the early 1990s, its economy faced stagnation. As the yen's value rose against the dollar, Japan's Ministry of Finance sought to keep the yen's price low to encourage exports. While this strategy increased exports, it also made foreign goods more expensive for Japanese consumers.

Definition: When a foreign company sells a product at a price lower than its normal market value.

Why do countries use it? To attract more international buyers and increase market share. By dominating the market, a company can later adjust prices and quality with reduced competition.

How is it used? Between 2014 and 2017, Chinese electric bikes entered the European market at significantly lower prices, capturing 35 percent of the market by the end of 2017. This influx made it difficult for European manufacturers to compete, leading to a European Union commission imposing punitive tariffs on Chinese bike imports, with some tariffs reaching as high as 83.6 percent.

Definition: Regulations governing exports deemed important for national security, economic security, or foreign policy. This includes both physical technology and intellectual property like software and research.

Why do countries use them? To safeguard national interests, as certain products, such as nuclear materials or sensitive technology, should not be traded freely across borders.

How are they used? Some Chinese firms collaborating with U.S. companies have been accused of stealing U.S. technology for military purposes. In response, the U.S. enacted a law allowing investigations into these companies, which could inadvertently affect other businesses, such as Netflix, that utilize algorithms for recommendations.

Definition: Measures that limit or completely halt trade with another country. Sanctions often involve economic actions like asset freezes and trade restrictions to compel a specific behavior or outcome from another nation.

Why do countries use them? To persuade another country to take certain political actions, such as ceasing human rights violations or halting nuclear weapons development.

How are they used? In 1979, the U.S. banned imports from Iran following the Iran Hostage Crisis. In 1992, the U.S. Congress passed the Iran-Iraq Arms Nonproliferation Act, prohibiting the transfer of goods or technology to Iran that could be used for nuclear weapon development. The European Union supported some of these sanctions. The impact of these sanctions varied; while Iran developed an economy resistant to them, it faced significant challenges, including shortages of non-sanctioned products like cancer medications in 2012 due to difficulties in financial transactions.

Overall, countries implement trade barriers to facilitate the sale of their goods domestically or internationally. Various economic and political factors can lead nations to prioritize security, politics, or domestic industries over free trade. However, these trade barriers often result in unintended consequences and may not achieve their intended goals. Ultimately, trade will always be more complex than the open market that the WTO aims to protect, and as globalization continues to connect markets, every country will need to address the implications of free trade and the barriers that accompany it.