Trade Barriers: Types and Effects on Global Commerce

Types of Trade Barriers

Trade barriers can be categorized into tariff barriers and non-tariff barriers.

Tariff Barriers

Tariffs are taxes imposed on imported goods. They're categorized into:

• Ad Valorem Tariffs: These are charged as a percentage of the value of the imported good. For example, a 10% ad valorem tariff on a $100 imported good would result in a $10 tax.
• Specific Tariffs: These are charged as a specific amount per unit of the imported good. For example, a $5 specific tariff on a crate of imported oranges.
• Compound Tariffs: These are a combination of ad valorem and specific tariffs.

Non-Tariff Barriers

Non-tariff barriers are restrictions that are not in the form of taxes. They include:

• Quotas: These are limits on the quantity of a good that can be imported during a specific period.
• Embargoes: These are bans on trade with specific countries due to political or economic reasons.
• Standards: Technical, health, and safety standards can be used to limit imports. Imported goods that don't meet these standards are denied entry.
• Subsidies: Domestic producers receive financial assistance, making it difficult for foreign goods to compete.

Effects of Trade Barriers on Global Commerce

Trade barriers significantly impact global commerce. They can:

• Protect Domestic Industries: Barriers protect domestic industries from foreign competition, allowing them to grow and create jobs. For instance, the average tariff on agricultural products in the EU was 11.1% in 2019, protecting EU farmers from cheaper foreign produce.
• Retaliation and Trade Wars: Trade barriers can lead to retaliation from trading partners. The recent US-China trade war, which started in 2018, led to billions of dollars in tariffs on both sides.
• Increased Prices: Trade barriers often result in increased prices for consumers. For example, the U.S.'s steel tariffs in 2018 resulted in increased domestic steel prices.
• Reduced Efficiency By protecting inefficient domestic industries, trade barriers can reduce economic efficiency, leading to potential deadweight losses in the global economy.