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.

Tarrifs Definition: a tax placed on imports to increase their price in the domestic market. Protective tariff – designed to make domestic products cheaper than their foreign made rivals. The goal is to make the imported good more expensive 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 Increased sales for domestic (US) goods 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 country limits the product that can be imported from another 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: An economic sanction to make a political statement The government completely restricts trade with another country

Embargo: Cost/Benefits Costs: Loss of imports Human rights Prices rise due to lower supply 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 producers 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