Question

Why do most countries impose restrictions on trade with other countries? If the theory states that free-trade across borders generally leads to lower prices and increased benefits for consumers and producers, why don’t governments just leave trade alone?

Answer 1

Although international trade is said to be beneficial for both producers and consumers, still certain countries impose restrictions on trade with other countries.

This is because free trade can impose potential large losses on to the domestic producers of goods which the country is importing.

For e.g. if US imports automobiles from Japan, then it will harm the domestic producers of automobiles in US. This is because instead of buying goods from domestic producers, consumers will prefer buying different varieties of those goods from other countries’ producers, thereby leading to losses for domestic producers.

Also, countries prefer trade restrictions in order to prevent workers from getting unemployed (due to large imports being preferred over domestic production)

Another argument favoring trade restrictions in the national security argument, where in trade restrictions must be preferred for goods of national security like defense, military etc. in order to make countries self sufficient during times of emergency like wars.

Thus, these are the arguments why some countries prefer trade restrictions.