Question

Trade barriers are used by developed and developing countries as a mechanism to protect their economies. Explain at least two types of trade barriers that apply to developed and developing countries? What are some of the advantages and disadvantages of trade barriers? Which of the barriers you mentioned are more effective for developing and developed countries and why? (100 words minimum)

Answer 1

Tariffs- Tariff is one of the most used for trade barriers, because it raises the cost of the products and services imported. Tariffs are used mainly to collect the taxes on the manufactured products. Tariffs are used mostly for several reasons: the barriers to trade are usually used to protect domestic workers. Foreign-market imports boost competition with domestic demand. Despite of cheap foreign labor and lack of regulations, most domestic consumers purchase products other than domestic production. Compared to domestic manufacturers, however, the products produced by foreign workers are cheaper, so most consumers purchase foreign goods. Despite of this, unemployment would increase as foreign labor was cheap. Domestic manufacturing has high labor wages as well as taxes paid to the government and regulations. The international imports, on the other hand, benefit a competitive advantage from domestic output due to low international wages paid to their employees.

Import Quotas- Import Quotas restrict the amount that may be imported on goods and services. In import quotas the domestic government has legal limits on the products that are being imported. Import Quotas hold the limits on the first come first serve basis; if the products exceed their cap then no more products are imported. Often this form of trade barriers holds licenses to import products. For example, the U.S. has put a quota on imported textiles from India and other countries.

Disadvantages are:

The rising cost of imports translates into a restricted product option. For example, small companies will not be able to afford to pay such expenses in such a way that they sell less products. Most companies are making their money off foreign trade. For example, automotive manufacturers sell cars in international markets.

Trade barriers will restrict their ability to export goods, resulting in revenue loss and a decrease in income. Trade barriers impact economic development in developing countries, which due to high tariffs are unable to export goods, thereby restricting their ability to flourish and expand their operations. It also has a direct impact on employment and foreign affairs.

Advantages are:

Duty tax raises the overall expense of the goods and services imported. When a government levies this import tax, it's aimed at stopping local consumers from importing.
A government's national security which heavily imports military weapons can be compromised if the exporting country restricts arms exports. To prevent this from happening, a government tries to promote domestic development of defense equipment, especially that of a developing nation.