Effects of Trade Barriers on International Trade

Introduction

To understand the effects of trade barriers on international trade, it is essential to know what international trade is and what a trade barrier is. -International trade refers to the exchange of goods and services between different countries. This form of trade leads to growth of global economy where demand and supply affect and are affected by different global events.

Trade barriers

Trade barriers come in different forms including quotas. They are trade limits set by a country on all imported products. This is carried out or practiced for various reasons including the need for the government or the state to protect its domestic manufacturers and infant industries. Other common trade barriers used by governments include taxes, tariffs and exercise duties.

In this way, the barriers can impact international trade by preventing flow of goods and services from producers to consumers. Where duties, tariffs and quotas prevent flow of goods, it ends up impacting the profitability or productivity of clients despite the fact that such, will often explore other markets without any barriers.

Effects of trade barriers on international trade

As mentioned above, trade barriers affect the productivity of producers across different parts of the globe. Producers therefore explore markets with no barriers leading to low profits.

Without net export, a country can easily remain a consumer of products and services from other countries without incurring huge debts. This is through trade imbalance and is economically advantageous to involved parties as they maximize on the production of their industries via open markets to a large client base.

In order to protect their economies, many countries impose quotas, tariffs, exchange controls and subsidies among other barriers on imported products. By use of protectionism, a state can easily gain from it by protecting infant companies, protecting manufacturing companies and dumping but on the other hand, they can have issues such as organizations retaliating, misallocation of funds and being or remaining inefficient. In regards to international trade, states benefit on comparative and it is an absolute advantage.

With trade barriers, international trade tends to increase the amount of goods that local consumers can choose from. This decreases the cost of such products via increase competition and allows domestic companies to ship their products abroad. While all these appear beneficial free trade hasn’t been widely accepted as totally beneficial to all parties.

Comparative advantage and trade barriers

According to economists, the effects of trade barriers on international trade can be best explained by the theory of comparative advantage. The theory focuses on free trade which involves eliminating all barriers except for those that are considered healthy for global trade. However for countries that practice free trade, products are heavily subsidized especially on industries such as agricultural and steel industry.

Trade barriers in this case affect international trade in developing countries. Rich country players set trade policies that lead to dumping on global markets and overproduction. The countries will further reduce prices for certain goods.

Additionally, trade barriers have a larger potential for reducing international trade welfare compared to tariffs. They lead to creation of little economic resources especially those set aside from production of tangible goods. An export subsidy can also be used to offer an advantage to a local producer over a foreign or an international producer.

Trade barriers such as export subsidies therefore have a high and strong negative impact because besides affecting resource allocation, they significantly impact or reduce global economy in terms of international trade.

The barriers simply operate by increasing the price of imported goods hence, forcing local producers to explore global markets. In other cases, they are forced to reduce the prices of their products due to increased competition. Local consumers are left paying a lot more and this limits the volume of imports and in the end, it affects international trade.

Conclusion

Many countries across the globe introduce trade barriers as a way of protecting its local industry. Even so, there is still a very delicate balance between the pursuit of efficiency in international trade and the need for the state to ensure there is little unemployment rate.

 

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Sources

http://www.infoplease.com/cig/economics/barriers-international-trade.html

http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp

https://www.boundless.com/business/textbooks/boundless-business-textbook/international-business-4/international-trade-barriers-38/economics-190-5286/