Barriers to Trade SSEIN2a: Define trade barriers as tariffs, quotas, embargoes, standards, and subsidies. SSEIN2b: Identify costs and benefits of trade barriers over time SSEIN2c: List specific examples of trade barriers.

What are Trade Barriers? Any form of governmental or operational activity or restriction that renders importation of some goods into a country difficult or impossible.

Trading People and organizations in different countries often trade goods and services because they value the things they buy more than they sell

What is trade? A transaction in which good, services or information are sold or purchased between two or more parties. International trade: the exchange of capital, goods, and services across international borders or territories.

What are the benefits of trade? Can help countries grow Reduce poverty Increases the total world output of goods and services

Two Arguments Free Traders: favor fewer or even no trade restrictions Protectionists: favor trade barriers that protect domestic industries

The arguments- Which side are you on? The Issue Free trade Protectionism National defense Disadvantages of a smaller supply What happens when you can’t get foreign goods because of war? Promoting infant industries Protection will eventually be removed Industries need to gain strength before competing globally Protecting Domestic Jobs Best not to interfere Provide temporary protection Keeping money at home America dollars going abroad come back Keep money in the United States Balance of payments dollars return to stimulate employment Restrictions help balance

Tariff’s Definition: a tax placed on imports to increase their price in the domestic market. Two types: Protective tariff – designed to make domestic products cheaper than their foreign made rivals. Revenue tariff – generates revenue for the government without making the product more expensive than the same domestic products.

Tariff’s: Costs: Price of goods increases. Reduced competition Hidden costs of political and cross-industry retaliation.

Benefits of Tariff’s Protect young domestic industries from foreign competition. Protect aging and inefficient domestic industries from foreign competition. To protect domestic companies from “dumping” from foreign companies or governments.

Examples of Tariff’s In the year 2000, tariff’s were increased 8-30% on imported steel. Goal was to save jobs in the U.S. steel industry. Tariff’s are placed on imported cars depending on the value of the car.

Quota Definition: A specific number or proportion of a good allowed to be imported into the country.

Quota: Costs and Benefits Costs of Quota’s Shortages Higher prices Benefits of Quota’s Domestic job protection Domestic industry protection

Quota’s: Examples In 1981, President Reagan put a limit on the number of imported cars that foreign car produces could bring into the United States. Consumers had fewer cars to choose from Prices were higher than they would have been without the quota. Sugar quota’s have been in effect for 50+ years Limits the amount of imported sugar Protects U.S. sugar industry.

Embargo’s Definition: A government prohibition against the shipment of certain products to a particular country for economic or political reasons.

Embargo: Cost/Benefits Costs: Loss of imports Human rights Benefits Political leverage Increase in substitutes

Embargo Example: Cuba embargo began in 1963 and still continues today. No imports or exports allowed No free travel between the countries

Standards Definition: Laws that promote the health and safety of products and services within the country.

Standards: Cost/Benefit Costs: Increased cost of inputs Increased prices Decreased competition Benefits: Safer products Higher quality products Recourse against products not made to specifications.

Cars must have seat belts Toys cannot be made with lead paint. Standards Examples: Cars must have seat belts Toys cannot be made with lead paint.

Subsidies Definition: a government payment to an individual, business, or other group to encourage or protect a certain type of economic activity.

Subsidies: Costs/Benefits Protects inefficient industries When repealed, costs go up and producers leave the market Benefits: Lowers the cost of production Encourages current produces to remain in the market and new producers to enter

Subsidies Examples: Dairy farmers receive subsidies to help them stay in business. Research and production of biofuels

Trade Blocs Groups of countries (usually in the same geographic region), that have agreed to eliminate or reduce barriers to trade among the participating countries.

Trade Bloc North American Free Trade Agreement NAFTA United States, Canada, and Mexico Gradual elimination of trade barriers between these countries

Trade Bloc European Union 26 European Union Shared currency called the Euro Great Britain opted out of the EU, June 23, 2016

Trade Bloc Association of Southeast Asian Nations ASEAN Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Cambodia, Laos, Myanmar, and Vietnam Elimination of most tariffs in this trading region