1) Tariffs are taxes imposed on imported goods.
These are a common tool governments use to protect
their local suppliers from foreign competition. Tariffs work by increasing the price of other countries'
goods making the imported goods less competitive. In other words, local goods become more attractive
to domestic consumers. Tariffs impact the exporting country by cutting down the demand for their
products.
Tariffs also provide a source of revenue for the government. The governments in some countries
implement tariffs to increase their revenues because it may be difficult for them to collect taxes
otherwise.
Example: In the U.S.-China trade war that began in 2018, both countries imposed
tariffs on a wide range of goods. For instance, the U.S. imposed tariffs on $250
billion worth of Chinese imports, affecting industries like electronics, machinery, and
textiles.
Statistics: According to the Peterson Institute for International Economics, the average U.S. tariff on
Chinese imports increased from 3% in 2017 to around 21% by 2019.
2) Import quotas are a tool the government uses to target the quantity imported of a particular good. In
other words, when import quotas are applied, there is only a certain amount of quantity of a good
allowed to enter the domestic market.
Example: Japan places quotas on imported rice, which limit the amount of rice that
can be brought into the country each year.
Statistics: Japan's rice import quota is typically set at around 770,000 metric tons
per year.
3)Other than import tariffs and quotas, governments also use
other trade barriers to limit trade between countries. Non-
tariff obstacles include regulations, licenses,
and sanctions.
The main difference between tariffs and other barriers to trade is that tariffs generate revenues for the
government while other trade barriers don't.
a)Granting licenses to specific individuals and/or businesses
is one non-tariff barrier to trade. This allows only certain
people or companies to import goods from other countries. It
contributes to significantly reducing the number of goods
coming from other countries.
Example: The European Union's General Data Protection Regulation (GDPR) imposes
strict data privacy regulations, affecting businesses worldwide that handle European
customer data.
Statistics: GDPR fines have generated substantial revenue for the EU, with fines
totaling over €272 million in its first year.
b) Sanctions are government acts that ban individuals and
companies from doing business with a country or certain
entities in a country. Sanctions can make it hard for
individuals or countries to conduct trade.
Embargoes are one form of sanctions. These are severe
sanctions that completely ban the trade in certain goods or
all goods from another country.
Example: The United States imposed economic sanctions on Iran, restricting trade
in various industries, including oil and banking.
Statistics: The sanctions on Iran have had a significant impact, causing its oil
exports to drop from over 2 million barrels per day to under 500,000 barrels per day
in some periods.
Effects of Trade Barriers
Tariffs, quotas, and other trade barriers are great at
protecting the local producers of the protected goods. These
domestic producers can supply a higher quantity of goods at
a higher price. But there are negative effects associated with
trade barriers:
Reduced competition. Barriers to trade aim to protect
local producers from international suppliers. This, in
turn, reduces the competition in the market, which may
cause local producers to be less efficient and less
innovative.
Harm to consumers. Consumers may be harmed as
the price of goods that tariffs are applied on increases.
This will cause a decrease in consumers’ purchasing
power.
Harm to other domestic producers. Barriers to trade
can hurt domestic producers who rely on imported
inputs for their productions.
Potential trade wars. The country to which tariffs are
imposed may respond by doing the same thing. This is
known as trade wars and harms consumers and
producers in both countries as there is less competition
and prices of goods increase.