The growth of international trade has been very rapid in the last few decades to the extent that today all countries in the world engage in trading with other countries.
International trade has a great impact on country’s economic development, no matter which political system is in place. By trading together, countries can improve relationships which can help to resolve political differences between them.
Why restraining international trade?
It is known that large international businesses are able to supply products at much cheaper prices than smaller local businesses. If those large foreign businesses start to take over the trade in the host country, this will have a damaging effect on the local economy. When small businesses cannot compete any longer with large businesses, they may have to close down. There will be job losses causing unemployment, and ultimately less choices for consumers.
Tariffs, quotas and embargoes discourage international trade
The most typical methods of restraining international are tariffs, quotas and embargos. These trade barriers can be placed both on imports and exports to reduce trading with a particular country, or the whole trading bloc.
1. Tariffs
A tariff is a kind of TAX paid on goods that are imported into a country or exported from a country.
WHY? Done to protect the local economy and domestic producers from foreign imports. The governments can also put tariffs on exporting essential items such as food, precious metals and natural gas to ensure that the country has enough.
HOW? Tariffs increase the cost of the imported goods forcing overseas businesses to sell their goods at a higher price. It makes the foreign goods less competitive.
SO, WHAT? Tariffs reduce local demand for the overseas goods. It benefits local businesses as they have less competition. The import tariff, which is de facto just another TAX, also bring revenue for the country’s budget.
2. Quotas
A quota is a physical limit on the quantity of goods that can be imported into a country or exported from a country.
WHY? Done to benefit local producers as there are less foreign goods on the market and they face less competition.
HOW? Quotas are usually set on imports of certain goods from a specific country often without consultation with the exporting countries. They can also be set regionally or globally.
SO, WHAT? With quotas in place, exporting countries will only be able to sell a very limited amount of goods to the country, but also customers in the country might be disappointed as there are limited supplies of overseas products.
3. Embargoes
An embargo is an official ban on trade or other commercial activity with a particular country.
WHY? Done as a result of unfavorable political or economic circumstances between the countries.
HOW? Embargoes isolate another country and create difficulties for its government. Another country is forced to act on the issue that led to the embargo.
SO, WHAT? Embargoes can have serious negative consequences on the affected nation’s economy.
To restrain international trade, many governments around the world, have imposed trade barriers such as tariffs, quotas and embargoes to protect the domestic market.
