Question

If free trade increases the welfare of everyone participating in trade, then why would some countries choose to impose trade barriers? What policy tools are available for governments to limit the amount of imports?

Answer 1

In free trade, countries can export and import goods without any tariff/non- tariff barriers. Though free trade benefits everyone participating in trade, it has some cons also. They are:

• Loss of domestic industry: Free trade goods with lower costs always competes with domestic products. This will result in the loss of domestic industrial goods and services.
• Degradation of environmental resources: Free trade deals can cause reduction in minerals, deforestation and timber etc. of the economy, because market countries may lacks the protection of environment.
• Increase in job outsourcing : Without tariffs, imports from countries with a low cost of living cost less. Then companies may reduce their workforce because it makes difficult for them to compete with the same industrial foreign goods.

The above are the few negative effects of the free trade. Trade barriers can protect a country's business, welfare and revenue, it also controls the free inflow of international goods and services. In order to control free trade agreements cons, some countries choose to impose trade barriers.

There are some policy tools are available for governments to limit the amount of imports. They are:

• Import Quotas
• Voluntary Export Restraints
• Import Authorisation
• Sole import monopolies
• Import duties / taxes
• Other tariff / non tariff barriers