Trade Barriers

Trade Barrier – A law passed or action taken by

the government of a country with the intention of

restricting the flow of goods and services between

its country and another.

Subsidies – A transfer payment given by a

government to their exporting companies

Benefits

Protects domestic

industries without putting

other trade barriers in

place - protects jobs

Makes US goods price-

competitive overseas

Costs

Requires higher taxes

May limit

entrepreneurship and

innovation

Allows for inefficient use

of resources

Trade Barriers

Subsidies

Trade Barriers

Tariff – A tax placed on imported goods

Benefits

Provides revenue to the

importing country

Protects the domestic

producers - makes their

products more

competitive

Protects domestic jobs

Costs

Limits competition

Higher prices for

consumers

May lower profits, raise

unemployment, hurt the

economy

Allows inefficient use of

resources

Trade Barriers

Tariff

Quota – A limit on the quantity of a

good imported into a country

Benefits

Protects the domestic

producers - limits

competition

May increase domestic

companies’ profits

Protects domestic jobs

Costs

Limits competition

Higher prices for

consumers

May lower profits, raise

unemployment, & hurt

the economy

Allows inefficient use of

resources

Trade Barriers

Quota

Trade Barriers

Embargo – A complete ban on trade with a

particular country due to political disputes

Benefits

Provides a diplomatic tool

without war

Costs

Denies consumers certain

products or tourism

Curtails US companies’

trade opportunities

May allow foreign

companies access to the

embargoed market

Trade Barriers

Embargo

Trade Barriers

Standards – Specific guidelines a good

must meet before it can be imported

Benefits

Protects American

consumers from possible

health/safety dangers

Protects US manufacturers

from unfair competition

from inferior goods

Costs

Raises the cost of imports

Increases government

enforcement costs

May limit availability of

imports

Trade Barriers

Standards

Trade Barriers

Trade Barrier Examples

2002 U.S. Tariffs on Steel

2005 Quotas on China’s Textiles

U.S. Embargo against Cuba

USDA Labeling Standards

U.S. Agricultural Subsidies

Trading Blocs

NAFTA - North American Free Trade Agreement

It was established to promote

barrier free trade between Canada,

the United States, and Mexico.

$223.5 $579.6

$336.89$344.5

$5.5

$28.8

$113.6

$150.6

$53.5

$52.1

$1.2

$3.6

Trading Blocs

NAFTA - North American Free Trade Agreement

EU - European Union

Allows for free movement of goods and workers across country borders. 18 EU countries use theEuro as their currency to further reduce obstacles to trade.

28 countries in the EU

Trading Blocs

NAFTA - North American Free Trade Agreement

EU - European Union

ASEAN - Association of South East Asian Nations

Includes 10 countries in SE Asia

Established to promote economicgrowth, free trade, and economic collaboration betweenmember nations

Provides ASEAN countries with leverage in trading with China

Trading Blocs

NAFTA - North American Free Trade Agreement

EU - European Union

ASEAN - Association of South East

Asian Nations

TPP – Trans-Pacific Partnership

Assignments:

Arguments for protectionism

1 Protect infant industries

2 Protect domestic employment

3 Protect national security

4 Protect workers in developing countries from unfair

labor practices

5 Protect the environment in developing countries

1. Define the argument for/against free trade

2. Explain the argument from the protectionist

and free trader perspective

Protectionism

Protect infant industries

Pro Use trade barriers when a new industry is in the early stages of

development

Unless an industry can grow and establish economies of scale (high

output with low cost per unit), it will likely not survive in

competition with established industries in other countries

Free traders Hard to accurately predicting which industries will “grow up” and

be competitive

“Once protected – Always protected”

Protectionism

Protect domestic employment

Pro Protect workers from becoming unemployed due to competition from

products made by workers in developing countries who usually work

for much lower wages and benefits

Free traders Protectionism increases prices for consumers

Free trade and efficient production usually leads to new industries

and jobs within those new industries

Using comparative advantage (specialize and trade), enriches workers

and they become consumers of international goods as well as

producers

Protectionism

National Security

Both sides agree some protections are necessary

Pro

Important to maintain industries critical to the country’s

national security even when the industry cannot efficiently

compete at the international level

Free traders

Potential for abuse by less-than-essential industries

• Steel production

• Ship building

• Weapons production

• Aircraft industry

• Automobile industry

Protectionism

Protect workers in developing countries

from unfair labor practices

Pro (developing nations) Despite relatively bad working conditions, developing

country workers would lack jobs entirely if unable to produce and sell goods abroad

Over time, workers will become more established will demand better working conditions

Oppose (developed nations)

Limit the purchase of goods by people in the developed

country

Inefficient use of resources

Protectionism

Protect the environment

Pro (developing nations)

Nations must be able to produce goods without being held to

developed nations’ environmental standards because they

would be uncompetitive

As countries increase growth eventually the environment

will become cleaner

Oppose (developed nations)

Limit the purchase of goods by people in the developed

country

Inefficient use of resources