What Are Barriers To Trade?

In its simplest terms, a trade barrier is any government regulation or policy that restricts movement of goods and services between countries (international trade). These barriers to trade come in a number of forms, including tariffs, special licenses to import or export, quotas or limits on the number of items traded, government subsidies that benefit one industry to the detriment of another and embargoes that completely restrict the movement of such products from a particular nation.

Understanding the basics of trade barriers might require knowing a little about some of the particular types, such as tariffs and import/export licenses. For example, a tariff is, according to dictionary definition, a schedule of fees or “duties” placed on imported goods. Governments may occasionally place such duties on exported goods as well, to limit movement of particular products out of the country.

The basic effect of a tariff is to make the imported goods more expensive, an action that benefits manufacturers and sellers of similar products within the country imposing the fee. Governments may also add cost to products and services by collecting a license fee from businesses up front. Payment of this license fee allows the company to then begin importing or exporting according to the guidelines set by the licensing nation.

In the last couple of decades, trade barriers have become the subject of much controversy, as the movement for free trade has gained momentum. Several international organizations have made it their sole purpose to prevent or remove barriers to trade, such as the tariff, license fees or import/export quotas. The ultimate goal is to open up national borders for movement of goods, without regard to the businesses in the importing country that might be hurt economically.

Some refer to this policy as free trade, which operates without restriction or interference from governments. According to the theory of free trade, prices for goods are set by a pure supply-and-demand process. For this system to work, individual governments cannot impose tariffs, fees or other measures meant to protect domestic companies from cheaper imports. Nor can the governments stand in the way of exported goods in the interest of the receiving country or for any other reason.

In the past few months, the issue of trade barriers and a worldwide trade war have come to the top of the media priority list. According to several reports, 20 countries met in the fall of 2008 and agreed not to impose barriers to trade that would protect corporations in their home countries. But within weeks, the media reports state, several countries have taken steps to restrict trade because of the unstable economic situation in the United States, Great Britain and some European countries.

The United States and Mexico have started taking punches at each other, with one restricting truck deliveries from the other, while also putting new restrictions on specific products. Economists and government leaders fear that the actions of a handful of countries could set off a landslide of actions that might stall the already sputtering world economy.