Question

what is the effect of trade barriers on the trade balance the employment and the economic growth

Answer 1

Due to trade barriers, the import of goods and services is restricted. It causes net exports to increase in the short term as long as other affected nations do not retaliate. It causes trade balance situation to improve. But, sooner the affected nations retaliate and they also apply trade barriers, then exports from the nation also decreases.Hence, net export decreases or can be worsened, negatively affecting the trade balance. The trade barriers negatively affect employment, as it causes promotion of inefficiency, higher price, poor quality of the products and less alternatives to the consumers. It causes people pay more for the goods and buy less of other goods. It creates decrease in demand and due to this, firms lay off their workers. It causes increase in unemployment.

Further, with decrease in demand and increase in unemployment, purchasing power decreases. It leads to reduction in GDP and economic development suffers in the economy where the trade barriers are applied.