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What are Trade Barriers?

By Brendan McGuigan
Updated May 16, 2024
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Trade barriers are any of a number of government-placed restrictions on trade between nations. The most common ones are things like subsidies, tariffs, quotas, duties, and embargoes. The term free trade refers to the theoretical removal of all trade barriers, allowing for completely free and unfettered trade. In practice, however, no nation fully embraces free trade, as all nations utilize some assortment of barriers for their own benefit.

Tariffs are a fairly common form of trade barriers, and are essentially taxes on goods as they cross the borders of a nation. Tariffs nearly always are placed on goods that are brought into the country, as opposed to goods sold as exports, although in some cases they may go both ways. Historically, tariffs were a large source of government revenue, as they could easily be collected as a tax on ships as they landed in the nation.

Tariffs may be imposed for different reasons. Some tariffs are placed simply to earn money for the government. This might either be a flat fee on an item, or it might be based on the market value of the item. Other tariffs exist as a form of protectionism, to make imported goods more expensive than they might otherwise be, in order to protect domestic industries. For example, if a country has a fairly high wage, and high labor standards, the cost of producing a single widget might be around ten units. If a nearby country can produce a widget for three units, then imports of that country’s widgets could easily drive the domestic industry out of business. So the country might place a restrictive tariff on widget imports, to make sure that domestic widgets always remained competitively priced, or even to make it unfeasible for widgets to be imported at all.

Subsidies are another of the common trade barriers, and are often placed to protect domestic industries. Subsidies may actually be intended simply to make certain key goods affordable to citizens of the nation, but the end result can still be to make imports non-competitive. Many food crops, for example, are heavily subsidized, to ensure the citizenry has a constant supply of affordable food. Steel is also often subsidized, to ensure a nation always has a domestic steel supply, which can be crucial during times of war when normal shipping avenues may be cut off.

An embargo can be seen as the most extreme of the trade barriers. Embargoes basically prohibit the import or export of anything with another country. This is often done as a form of punishment, or to try to force the country to undergo radical change internally as a result of a weakened economic state. Historically, the embargo was used as a war tactic, and so was often considered a declaration of war. In modern times, however, although the most brutal of barriers, it is usually not viewed as an act of outright aggression, although a declaration of war is often accompanied by an embargo.

A number of free trade bodies exist in the world to try to curtail the use of trade barriers by nations. The World Trade Organization is perhaps the widest reaching of these bodies, and it enforces strict rules against member nations, restricting the acceptable use of things like tariffs. As a result, some countries have begun using trade barriers that are not tariffs, but have similar effects. The European Union, for example, does not allow the import of many genetically-modified organisms, which effectively bans the vast majority of food imports from the United States. In recent years, groups like the WTO have begun to look at these forms of trade barriers as well, and to strip them when possible.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By anon259822 — On Apr 08, 2012

Yes, free trade is good!

By anon259236 — On Apr 05, 2012

Awesome info. We were trying to find useful websites and this is the first!

By Burlap — On Sep 24, 2010

Thumbtack hits the nail on the head here with one key phrase, "good for the consumer." That is what these trade agreements are all about and breaking down the trade barriers will eventually lead to a free market where goods are traded at the value they truly have.

I sympathize with the American worker in his pursuit to keep an overinflated and unsustainable labor union wage. Unfortunately it is not the reality of how our economy can continue to operate.

Whether there are trade barriers or not, we will always have the flow of goods between markets, legal or illegal.

Illicit narcotics and drugs are a prime example of this. There is an absolute trade barrier on such toxins because of health risks yet the trade still does occur, just covertly. It would be better if we opened it up so it could at least be controlled. There is no such thing as free trade or fair trade, but I can tell you we need to control trade.

By thumbtack — On Sep 24, 2010

@GraniteChief, the same situation exists for farmers in our nation. By allowing more "free" trade across the boarders, grocers are now able to find cheaper produce on the other side of an international line.

While this might seem good for the consumer here in the US stores, it actually means that our money is going over those lines as well and not contributing to the building of America's economy.

I think we need to stop the globalization of our economies but still do fair trade, not free trade. Some of the trade barriers in place are necessary to hold the sanctity of our markets.

By GraniteChief — On Sep 24, 2010

Trade barriers and tariffs and among some of the most hotly debated political topics around the world. Here in the United States there are large labor unions attempting to stop the globalization of industries in an attempt to keep the work at home.

Essentially what is happening is these trade agreements like the North American Free Trade Agreement allow for less restriction and easier flow of products and services across borders. The reason the unions are opposed to this is it allows for multi-national conglomerate corporations to skirt around paying legitimate and solid union wages to workers in the United States.

Why would they want to pay someone $20 an hour to make automobile glass in Detroit when you can get the same product out of a factor in Mexico for $2 an hour.

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