Barriers to Foreign Trade

[Jasz]

The barriers to foreign trade are the factors that limit the flow of goods and services between countries. Many of these barriers exist because of government policies, but some also result from cultural differences. There are many barriers to foreign trade. Some of these barriers are government-imposed, others are voluntary.

Government-imposed barriers include tariffs, quotas and other import restrictions. Tariffs are the most common type of government-imposed trade barrier. No matter where a good is produced or consumed in the world, there will always be some importer who pays a higher tariff than he would have if he had bought from another country. Because of this, goods that would otherwise be traded across international borders are not traded.

Voluntary barriers include exchange controls and capital controls as well as restrictions on foreign investment in domestic markets. Exchange controls restrict the movement of money between countries; capital controls restrict the movement of goods and services among countries; and restrictions on foreign investment in domestic markets inhibit the flow of information between nations.

 

[Holicent]

The world has been moving towards a more open trade system since World War II. The idea that all nations should be able to trade freely was part of the original post-war agenda for economic recovery.

The barriers to free trade are many and varied. They include:

1) National sovereignty and protectionism

2) National policies that are protectionist or restrictive of foreign investment, including licensing requirements, restrictions on foreign ownership of land or natural resources and certain types of technology transfer

3) Protectionist measures adopted by individual countries against their trading partners in an attempt to offset disadvantages stemming from tariffs, quotas and other barriers to imports. These measures are often imposed unilaterally or multilaterally as part of a free trade agreement with a country’s trading partners.

Government policy makers have a vested interest in keeping their economies closed to trade. They may try to protect their domestic industries by adopting tariffs, quotas or exchange controls that make it more difficult for foreign goods to enter their country. These measures can be costly for consumers and businesses who must pay higher prices for imported goods.