Barriers to Trade

1. 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.

2. 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.

3. 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.

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

5. 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.

6. 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.

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

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

9. 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.

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

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

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

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

14. 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.

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

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

17. Subsidies: Costs/Benefits • 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

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