Trade Barriers BBB4M

Barriers to Trade

- a barrier to trade restricts trade

Barrier #1 - Tariffs

  • A tariff is a tax placed on products that are traded internationally.
  • It raises the cost of a product to the importer which discourages the consumer from purchasing the product.
  • e.g. if a store owner is importing shoes, a tariff collected by her government might add to the price she has to pay for them.
  • In the past, exporting to Pakistan was difficult. The country’s import duties ranged from 20-90% and were subject to a 5% education tax, a 6% import license fee, a 12.5% sales tax, and a 10% import surcharge tax.
  • There has been a global effort to reduce tariffs around the world because they make goods more expensive for businesses and consumers.
  • In certain circumstances, some governments consider tariffs helpful as a policy tool – they raise revenues and protect local industry from foreign competition (in the shoe example, a locally produced shoe might be cheaper than the imported one with a tariff).
  • A Scientific Tariff – brings the price of an imported product up and levelling the playing field for domestic producers. (consumer loses here)
  • Peril Point Tariff – levied to save a domestic industry that has deteriorated to the point that it may not survive.
  • A Retaliatory Tariff – levied in response to a tariff imposed by a trading partner
  • Under the World Trade Organization (WTO) agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour - such as a lower tariff rate for a product - and you have to do the same for all other WTO member countries.
  • MFN or Most Favoured Nation means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners.


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