B ARRIERS TO T RADE 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.

W HAT ARE T RADE B ARRIERS ? Any form of governmental or operational activity or restriction that renders importation of some goods into a country difficult or impossible.

T ARIFF ’ 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.

T ARIFF ’ S : Costs: Price of goods increases. Reduced competition Hidden costs of political and cross- industry retaliation.

B ENEFITS OF T ARIFF ’ 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.

E XAMPLES OF T ARIFF ’ 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.

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

Q UOTA : C OSTS AND B ENEFITS Costs of Quota’s Shortages Higher prices Benefits of Quota’s Domestic job protection Domestic industry protection

Q UOTA ’ S : E XAMPLES 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.

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

E MBARGO : C OST /B ENEFITS Costs: Loss of imports Human rights Benefits Political leverage Increase in substitutes

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

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

S TANDARDS : C OST /B ENEFIT Costs: Increased cost of inputs Increased prices Decreased competition Benefits: Safer products Higher quality products Recourse against products not made to specifications.

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

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

S UBSIDIES : C OSTS /B ENEFITS Costs: 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

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