What are ways of limiting trade?

1. What are ways of limiting trade?

2. Tariffs • Taxes on imports • Raise the price of imported goods which increases the demand and price for the same goods produced by domestic suppliers. • Revenues from tariffs are collected by the domestic government.

3. Quotas • Put a legal limit on the amount that can be imported • Creates shortages which causes prices to rise. • Quota benefits domestic producers in the same way a tariff does. • Additional money spent on foreign goods goes to the foreign producers, not the domestic government.

4. Embargoes • Prohibit trade with other nations all together. • Bar a foreign nation’s imports or ban exports to that nation or both.

5. Licenses • May be required of importers of foreign goods so that imports can be restricted by limited the number of licenses issued. • Export licenses may be required in order to implement partial embargoes on trade with specific nations.

6. Standards • Laws or regulations establishing health and safety standards for imported goods. • Frequently much stricter than those applied to domestically produced goods.

7. Subsidies • Payments made by governments to their domestic producers to enable them to compete with foreign competitions. • Usually intended to be temporary, allowing domestic producers to acquire new technology or to survive a short-term problem. • Frequently linger on for many years. • Difficult to dislodge entrenched special interests. • Taxpayers bear the costs of subsidy payments.

8. Extra Notes • Trade restrictions limit world trade, diminish economic efficiency, reduce total production and employment, raise prices, and encourage retaliation. • They benefit some domestic companies and their workers at the expense of foreign companies and workers, and domestic consumers. • While subsidies benefit some domestic companies and workers in exporting industries, tariffs reduce exports. • Tariffs shift resources and production from more effective to less effective producers.

9. Trade Unions/Blocks • Countries who enter into agreements agreeing to reduce and/or eventually eliminate trade barriers between their countries. • 3 different trade blocs that you should know: • NAFTA – North American Free Trade Agreement • EU – European Union • ASEAN – Association of Southeast Asian Nations • To become familiar with goals, barriers, etc., of the three trade blocks, complete the Trade Block Scavenger Hunt (separate file located on the website)