To encourage development of domestic industry and protect existing industry, governments may establish such barriers to trade — as tariffs, quotas, boycotts, monetary barriers, non-tariff barriers, and market barriers. Barriers are imposed against imports and against foreign businesses. While the inspiration for such barriers may be economic or political, they are encouraged by local industry. Whether or not the barriers are economically logical, the fact is they exist.
A tariff, simply defined, is a tax imposed by a government on goods entering at its borders. Tariffs may be used as a revenues generating tax or to discourage the importation of goods, or for both reasons. In general, tariffs:
Increase: Inflationary pressures, Special interests’ privileges, Government control and political considerations in economic matters. The number of tariffs (they beget other tariffs via reciprocity)
Weaken: Balance of payments positions. Supply and demand patterns, International relations (they can start trade wars)
Restrict: Manufacturers’ supply sources. Choices available to consumers,. competition.
In addition, tariffs are arbitrary. Discriminatory and require constant administration and supervision. They often are used as reprisals against protectionist moves of trading partners in a dispute with the European traders.
Types of Non-tariff Barriers:
Specific Limitations on Trade
2) Import licensing requirements
3) Proportional restrictions of foreign to domestic goods (local content requirements)
4) Minimum import price limits
Customs and Administrative Entry procedures
1) Valuation system
2) Antidumping practices
3) Tariff classifications
4) Documentation requirements
1) Standards disparities
2) Intergovernmental acceptance of testing methods and standards
3) Packaging, labeling marking standards
Governmental Participation in Trade
1) Governmental procurement policies
2) Export subsidies
3) Countervailing duties
4) Domestic assistance programs
Charges on Imports
1) Prior import deposit requirements
2) Administrative fees ‘
3) Special supplementary duties
4) Import credit discriminations
5) Variable levies
6) Border taxes.
1) Voluntary export restraints
2) Orderly marketing agreements.
Union over pasta export subsidies, the United States ordered a 40 percent increase in tariffs on European spaghetti and fancy pasta. The EU retaliated against US walnuts and lemons. The pasta war raged on as Europe increased tariffs on US fertilizer, paper products, and beef tallow, and the United States responded on Kind. The war ended when the European finally dropped pasta export subsidies. The EU and the United States also fought a similar trade war over bananas! Most recently less developed countries are increasingly voicing complaints about American and European tariffs on agricultural products.
A quota is a specific unit or dollar limit applied to a particular type of food. Great Britain limits imported television sets, Germany established quotas on Japanese ball bearings, Italy restricts Japanese motorcycles, and the United States has quotas on sugar, textiles, and, of all things, peanuts. Quotas put an absolute restriction on the quantity of a specific item that can be imported. When the Japanese first let foreign rice into their country it was on a quota basis, but since 2000 the quotas have been replaced by tariffs. Even more complicated, the banana war between the United States and the EU resulted in a mixed system wherein a quota of bananas is allowed into the EU with a tariff, then a second quota comes in tariff free. Like tariffs, quotas tend to increase prices. US Quotas on textiles are estimated to add 50 percent to the wholesale prices of clothing.
Voluntary Export Restraints
Similar to quotas are the voluntary export restraints (VERs) or orderly market agreements (OMAs). Common in textiles, clothing, steel, agriculture, and automobile, the VER is an agreement between the importing country and the exporting country for a restriction on the volume of exports. Japan has a VER on automobiles to the United States that is Japan has agreed to export a fixed number of automobiles annually. When televisions were still manufactured in the United States, Japan signed an OMA limiting Japanese color television exports to the United States to 1.56 million units per year. However, as a result of the OMA, Japanese companies began investing in television manufacturing in the United States and Mexico, and as result they regained the entire market that had been lost through the OMA, eventually dominating the entire market. A VER is called voluntary because the exporting country sets the limits; however, it is generally imposed under the threat of stiffer quotas and tariffs being set by the importing country if a VER is not established.