Reasons For Using Trade Barriers

By Mohammed Almahmoud

June 18, 2012

Trade barriers are being narrowly used in the 2000s than they were in the 20th century. Those barriers are believed to reduce the overall welfare of those countries. But some countries are still imposing trade barriers for different reasons. Even though trade barriers are expected to cut down the overall welfare of the importing countries, policy makers in many countries continue to use trade barriers for economic, political and social reasons.

Firstly, the economic reasons: Some countries use trade barriers to achieve economic objectives such as protecting domestic producers and industries and providing revenue for the government. As for protecting domestic producers, some countries use trade barriers is to protect immature domestic producers and industries that cannot effectively compete with foreign products. Trade barriers makes imported goods and products less attractive than locally produced goods. That enables domestic producers to successfully compete with foreign producing firms or producers. Protecting domestic industries has a positive effect on GDP and employment rates. Using this strategy in the short run with a specified gradual timeframe pressures domestic producers to improve the quality of their products and control their cost before reopening the markets. Having this strategy for the long run may cause domestic industries to relay on that and not have an incentive to improve and control their costs which cause a strategy failure.

The second economic reason is using trade barriers to provide revenue for the government. As a matter of fact, tariffs represents an important percentage of some countries’ revenue. So those countries cannot cut their tariffs and taxes because they cannot raise revenue for the government from other sources.

Secondly, the political reasons for using trade barriers: some policy makers believe that maintaining imports at a minimum guarantee political independence. If a country is not mainly dependent on imported products, the exporting countries cannot use their exports as a threat by making an economic embargo. For example, the trade barriers that Iraq, Syria and Iran has prior to the economic embargos in different times enabled those countries to endure economic embargos more than if they didn’t have those barriers.

Finally, social reasons: many countries use trade barriers to accomplish social goals. Tariffs and taxes are used to reduce the public consumption of harmful and unhealthy behaviors such as alcohol and tobacco consumption. Some policy makers believe that increasing the price of  harmful goods decreases their consumption. But most of those addictive products has a low price electricity meaning that the percentage decrease of quantity consumed is less than the percentage increase in price. So it can be argued that awareness campaigns are more effective than trade barriers in deterring people from consuming those products. But the tax revenue can be used to fund those awareness programs to effectively achieve the desired goal; lowering the consumption of those products.

Clearly, policy makers has convening reasons to use trade barriers to achieve economic, political and social goals.