What Are the Three Main Trade Barriers?

Trade barriers are governmental restrictions on the free flow of goods and services between countries. They protect domestic industries, generate revenue, or achieve political or national security objectives. These common features of international commerce influence trade patterns and the global economy, creating complexities for businesses.

Tariffs

Tariffs are a tax or duty imposed by a government on imported goods. This increases product cost, making imports more expensive for domestic consumers and businesses. The primary goal is to make imported goods less competitive than domestic alternatives.

Two main types of tariffs are used. An “ad valorem” tariff is a percentage of the imported good’s value; for example, a 10% tariff on a $100 item adds $10. This type adjusts with price, so a more expensive item incurs a higher tariff.

A “specific” tariff is a fixed monetary amount per unit, regardless of value. For example, a specific tariff might be $5 per imported bicycle. This fixed charge provides a predictable cost. Tariffs are paid by the importer to the customs authority, becoming a source of government revenue.

Import Quotas

Import quotas directly restrict the quantity of a specific good brought into a country. Unlike tariffs, which increase import prices, quotas directly limit the volume or value of goods entering the domestic market. This controls foreign supply, protecting domestic producers from foreign competition.

Governments implement quotas by issuing licenses to specific importers. Once the permitted quantity is reached, no further imports are allowed until a new period begins. This system ensures a predetermined limit on foreign supply. An absolute quota sets a fixed maximum amount, while a tariff-rate quota allows a certain quantity to enter at a lower tariff, with any amount exceeding that limit incurring a higher tariff rate.

Tariffs are price-based taxes making imports more expensive, while quotas are quantity-based limits. Quotas can be more effective in restricting trade than tariffs, especially when consumer demand is not highly sensitive to price changes.

Non-Tariff Barriers

Non-tariff barriers (NTBs) encompass trade restrictions that are not tariffs or quotas. These measures involve regulations, policies, or procedures making importing or exporting goods more difficult or costly. NTBs can be more subtle and diverse than direct taxes or quantity limits, yet they significantly impede trade.

One common NTB involves import licenses or permits, requiring special governmental approval. These introduce administrative delays and uncertainty. Another type includes product standards and regulations for safety, quality, labeling, or environmental impact. Imported goods must comply, which may necessitate costly modifications or testing, effectively acting as a barrier.

Government subsidies to domestic producers are an NTB. These payments lower production costs for local businesses, enabling them to sell goods at prices lower than unsubsidized imports. Subsidies make domestic products more competitive. Complete bans on trade with a country or specific goods, known as embargoes, represent another NTB. Embargoes are implemented for political or security reasons, aiming to isolate a targeted nation.

Currency controls restrict importers’ ability to convert domestic currency into foreign currency for payments. These controls limit access to foreign exchange for imports, impeding international transactions. These non-tariff measures contribute to the complexity and cost of international trade.