The Disadvantages of Trade Barriers

by Alison Green; Updated September 26, 2017

Trade barriers are government-imposed restraints on the free exchange of goods and services between nations. Along with raising the cost of foreign goods relative to domestic goods, trade barriers such as import tariffs and embargo acts limit the number of substitute goods available for consumers and can lead to sour trade relations between countries.

Reduced Consumer Satisfaction

Import tariffs increase the cost of international goods, taking away the incentive for traders to import. As a result, there is a decrease in the volume of foreign goods in domestic markets, meaning many consumers can choose only from domestic products, or must dig deeper into their pockets to acquire the foreign goods. In some cases, foreign goods are completely inaccessible. For example, many smokers in the U.S. are unable to buy and enjoy Cuban cigars, because the government imposed a trade embargo on Cuban imports in 1962. As of May 2015, the U.S. Customs and Boarder Protection notes that only people permitted to travel to Cuba can purchase up to $100 of Cuban alcohol or tobacco products for person consumption.

Increased Production Costs

Because the government levies tariffs on raw materials, such as agricultural and rare earth materials, U.S. manufacturers have to pay more to acquire inputs. According to a 2012 article published by the American Enterprise Institute, Mark Perry, a scholar and professor of economics, notes that U.S. manufacturers are more than 40 percent dependent on imports of raw materials or inputs. Unable to meet rising production costs, small manufacturers with limited finances may fold and create job losses. In the long run, this hurts the national economy.

Sour Trade Relations

As is the case with the U.S. and Cuba, a government can ban its citizens from exporting goods to, or importing from, a certain country. Such an action usually leads to a diplomatic fallout, and denies both nations the opportunity to fully benefit from free international trade.

Sometimes a government enforces trade restrictions in response to the actions of another government. For instance, when America established the Gas Guzzler Tax Act of 1978 -- effectively discouraging the importation of foreign-manufactured luxury cars -- Japan also imposed high import tariff on US cars. In such trade wars, the average consumer is priced out of the market.

Reduced Global Economic Growth

In general, trade barriers do more harm than good to the global economy. According to the World Trade Organization, many developed countries adopt trade policies to protect domestic companies, thereby reducing export opportunities for developing nations. Therefore, the developed nations continue getting richer as the developing ones continue to struggle economically.

About the Author

Based in New York City, Alison Green has been writing professionally on career topics for more than a decade. Her work has appeared in “U.S. News Weekly” magazine, “The Career” magazine and “Human Resources Journal.” Green holds a master's degree in finance from New York University.

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