TRADE BARRIERS

BY UMAMA YOUSUFTRADE BARRIERS

INTERNATIONAL TRADEThis involves the exchange of goods or services between countriesInternational trade is described in terms of:Export: The goods and services sold to other countriesImport: The goods or services bought from other countriesCountries trade goods because no country has all the resources necessary to efficiently produce everything its people need.

TRADE BARRIERSTrade barriers are the restrictions which are imposed by the government on the imports. The government introduces measures to make imported good or services less competitive compared with domestic goods or services.A physical trade barrier is a natural barrier like mountains, rainforests and deserts.TRADE BARRIERSTrade barriers keep products from being bought and sold between countriesThey hinder (stop or slow down) global tradeThere are 3 major types of economic trade barriers:TariffQuotaEmbargoMost barriers to trade are designed to prevent imports from entering a country.

TARIFFA tariff is a tax on imported products or servicesThe effect of tariff is to raise the price of the imported product.It makes imported goods more expensive so that people are more likely to purchase lower-priced items produced domestically.Moneycollected under a tariff is called adutyor customs duty. Tariffs are used by governments to generaterevenueor to protect domestic industries from competition.Example of Tariff Company XYZ produces cheese in Scotland and exports the cheese, which costs $100 per pound, to the United States. A 20% ad valoremtariffwould require Company XYZ to pay the U.S. government $20 to export the cheese.

QUOTA SYSTEMA Quota is a limit on the amount of goods that can be imported .Putting a quota on a good creates a shortage (or a scarcity), which causes the price of the good to rise and allows domestic producers to raise their prices and to expand their production.Example of QuotaGermany has imported 2 million tons of steel from France every year for the past decade.Germany then started an import quota on steel.Germany now only imports around 1 million tons of steel from France, but the country of Germany still uses around 3 tons of steel a year.

EMBARGOAn Embargo stops exports or imports (sending goods to another country and getting goods from another country) of a product or group of products. Sometimes all trade with a country is stopped, usually for political reasons.Example of EmbargoLast year Spain had some political disagreements with Greece, so they enacted an embargo against Greece. With the embargo, no Greek ships are allowed in Spanish portsTRADE BARRIERSAdvantagesGive rise to self-sufficiency thereby reducing foreign dependency.Protect local companies and create employment opportunities.Improve the balance of payments position.Create domestic demand that leads to greater exploitation of local resources.DISADVANTAGES Consumer choice is limited to domestically produce goods.Local industries become complacent due to lack of international competition, and thus lose efficiency.Even those goods which the country produces inefficiently and at high cost would need to be produced.

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