Trade Barriers

Trade barriers can be described as government laws, regulations, policies, or practices that either protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. The intention of these instruments is to raise the price of the traded products by imposing a kind of cost in trade. For Paul Krugman and Maurice Obstfeld, the most common foreign trade barriers are government-imposed measures and policies that restrict, control, and limit the international trade between countries by using restrictive instruments. These instruments can be in the form of tariffs, import quotas, export restraints, import licenses, subsidies, and nontariff barriers to trade.

In particular, if the government policy is to protect domestic infant industries from outside competition, then a protective tariff is considered as a tax levied when a good is imported. This tariff can be used as a tool for a trade policy to protect inefficient domestic industries. It is calculated as either a percentage of the value of the imported goods or as a fixed monetary amount per imported unit. The most popular method of calculating an average tariff rate is to divide total tariff revenues by the total value of imports. Import quotas are the limitations on the quantity of imports, and they can also be used as an effective tool for the trade policy. On the other hand, export restraints are the limitations on the quantity of exports imposed by the exporting country at the importing country's request. Subsidies make domestic goods and services artificially competitive against imports.

Nontariff barriers are particularly difficult to measure. For Dominick Salvatore, some of the nontariff barriers, such as antidumping measures and countervailing duties, might be used under certain conditions, but they can have the same effect as a tariff and they can be used like a tariff. Therefore, even though the World Trade Organization (WTO) imposed very significant reduction in tariff use, the use of nontariff barriers increased. Furthermore, manufacturing or production requirements of goods, health and safety rules, sanitation, and environmental standards can be under the category of nontariff barriers, but these are necessary barriers to keep standards higher. Other barriers to trade include overly rigorous health inspections and difficult licensing requirements, investment barriers, lack of intellectual property protection, and service barriers that regulate international data flow and foreign data processing.

Protectionists and Free Trade Supporters

In international economic history, in the 1930s, there was a wave of protectionism because of economic depression and because of the devastating impacts of the two World Wars. After World War II, governments looked for ways to diminish the trade protectionism and settled on Bretton Woods institutions in 1944. Then, the idea of removal of trade barriers gradually institutionalized itself with the establishment of the General Agreement on Tariffs and Trade (GATT) in 1948. Assisting trade in moving freely, removing obstacles through negotiations, providing [Page 1591]stability, and resolving disputes were among the responsibilities of GATT. The WTO came into being in 1995 through the multilateral trading system and replaced GATT. A key target for the member states is tariff reduction.

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