Sources and Types of Barriers and their Impacts

From Thermal-FluidsPedia

There are several reasons that countries impose trade barriers. The most common ones are: a) learning by doing, b) economics of scale, and c) national security (1).

a. Learning by doing – Trade barriers are imposed when the government believes that they can make a particular good more internationally competitive only if an infant industry is given enough time to gain experience to improve the product and reduce manufacturing costs. For example, a country may restrict the import of plastics to give local manufacturers time to improve their inferior product and eventually compete with a superior foreign product.

b. Economics of scale – Trade barriers are intended to allow a higher output of a certain good by local manufacturers. This reduces the cost per unit, making the good more attractive to foreign competition. For example, a country may be able to produce cotton at below international market price only if the volume of production exceeds a certain level.

c. National security – Trades are restricted by a country on the grounds that their national security may be threatened. This restriction may be imposed on both imports and exports. For example, a country may put a restriction on volume of imported oil because they don’t want to be dependent in a time of war. At the same time, the export of certain military equipment or specific chemicals may be banned to assure they do not fall into unfriendly hands. Trades may also be restricted by a country as a means of putting pressure on or punishing another country to achieve a certain political goal. For example, the US restricts trades with Cuba and North Korea to pressure these governments to change their policies on immigration or developing certain nuclear technology. Trade barriers can also be imposed to protect against transmission of insects, or to protect human health.

Depending on the impact they are intended to make, many kinds of trade barriers may be imposed. These include tariffs, quotas, embargos, regulatory trade restrictions, and nationalistic appeals. Tariffs or custom duties are taxes imposed by governments on imported goods. They are mainly to increase revenues and encourage consumption of domestically produced goods. Quotas refer to quantitative limitations placed on imports. An embargo is a total restriction on the import or export of a good. Regulatory trade restrictions are designed by governments to set certain standards and requirements to limit imports. Nationalistic appeal refers to a direct pleading to citizens to buy domestic products rather than products manufactured and imported from other countries.

No matter which type is used, trade barriers can only work if the affected country does not retaliate in kind or by other means. This is highly unlikely and, except in rare circumstances, trade barriers will not work in the long run. As trades become more and more global in nature, countries find other means to counteract by imposing their own barriers or finding alternative markets in which to sell and buy their necessities.

References

(1) Colander, D. C., Macroeconomics, 3rd Ed., Irwin McGraw-Hill, 1998, pp. 489.

(2) Toossi Reza, "Energy and the Environment:Sources, technologies, and impacts", Verve Publishers, 2005

Further Reading

Colander, D. C., Economics, 3rd E., Irwin-McGraw-Hill, 1998.

Bosselman, F., Energy, Economics and the Environment, Second Edition, Foundation Press, 2005.

Energy Economics, Science Direct Elsevier Publishing Company. Publishes research papers concerned with the economic and econometric modeling and analysis of energy systems and issues.

External Links

United States Association for Energy Economics (http://www.usaee.org).

International Monetary Fund (http://www.imf.org).

The World Bank (http://www.worldbank.com).