Describing the costs and benefits of trade barriers
The Costs of Trade Barriers
- Trade barriers impose a cost on the traded goods, thus raising their prices.
- Trade barriers are detrimental to trade, and reduce economic efficiency.
- Free trade involves the removal of all such barriers.
- Trade barriers affect underdeveloped and the developing countries more, because they face the highest barriers.
- Trade barriers as taxes imposed on agricultural goods by the developed countries, reduce the amounts they import from the underdeveloped countries.
- This leads to overproduction and lowering of prices of agricultural goods, hurting the farmers in the underdeveloped countries.
- Tariffs affect the poor countries more since they are higher on labor-intensive goods, which these countries export.
- Since trade barriers reduce imports, they thus reduce the consumption choices of the people in the country imposing the barriers.
- Tariffs increase the prices of imported goods, thus reducing teh consumption choices of the people.
- The tariff protected local industies take advantage of the tariff walls, and do not make any attemts at improving themselves.
- They keep producing inferior goods and never become competitive.
- As a result of this, domestic consumers pay higher prices for inferior goods.
- Their consumption choices are also very limited.
- Free trade will increase their consumption choices as well as reduce prices through increased international competition.
- Trade barriers will do the reverse.
Benefits of Trade Barriers
- Since a tariff is a tax, the government will earn revenue.
- Domestic industries and producers benefit from the reduced competition.
- They can still sell their inferior goods to the local people because the imports of better goods is reduced because of the tariff walls.
- If domestic production is created by the import substitution industries, it will help in creating local income, employment and also output.