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Trade Barriers

Trade Barriers. International Trade - Definition. International trade involves the exchange of goods or services between nations. This is described in terms of Exports : the goods and services sold in foreign markets. Imports : the goods or services bought from foreign producers. .

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Trade Barriers

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  1. Trade Barriers

  2. International Trade - Definition • International trade involves the exchange of goods or services between nations. • This is described in terms of • Exports: the goods and services sold in foreign markets. • Imports: the goods or services bought from foreign producers.

  3. Free Trade vs. Trade Barriers • Nations can trade freely with each other or there are trade barriers. • Free Trade: Nothing hinders or gets in the way from two nations trading with each other. • Trade Barriers: Trade is difficult because things get in the way. • There are costs and benefits related to free trade as well as trade barriers.

  4. Free Trade - Benefits • When nations specialize and trade, total world output or sales is increased. • Companies can produce for foreign markets as well as domestic markets (markets in the home country). • This means there is potential for making more money as there are more markets to sell goods or services in. • More variety of goods are available from a world market than just a domestic market. • Prices of goods are decreased through increased competition.

  5. Free Trade - Costs • The domestic country can lose money because more people are buying foreign goods • Example: In the U.S., people might want to buy a foreign automobile like a Honda or Toyota instead of an American made car. • Less money will go into the domestic market place and this can cause factories to be closed and jobs to be eliminated.

  6. Trade Barriers – Three Types • Trade barriers are things that hinder or get in the way of trading. • They can be cultural, physical , or economic. • Cultural barriers: language, currency, belief system. • Physical barriers: mountains, deserts, canyons,etc. • Example: The Alps Mountains in Europe • Economic barriers: government rules that restrict, block or discourage international trade between countries. (tariff, quota, embargo)

  7. Trade Barriers - Economic • The most common trade restrictions are: • tariffs--which are taxes on imports. • quotas--which are limits on the quantity that can be imported. • embargos--which are a complete trade block usually for political purposes.

  8. Tariffs • A tariff is a tax put on goods imported from abroad • The effect of a tariff is to raise the price of the imported product. • It makes imported goods more expensive so that people are more likely to purchase domestic products. • EXAMPLE: The European Union removes tariffs between member nations, and imposes tariffs on nonmembers

  9. Quotas • A quota is a limit on the amount of goods that can be imported. • Putting a quota on a good creates a shortage, which causes the price of the good to rise and makes the imported goods less attractive for buyers. This encourages people to buy domestic products, rather than foreign goods. • EXAMPLE: Germany could put a quota on foreign made shoes to 10,000,000 pairs a year. If Germans buy 200,000,000 pairs of shoes each year, this would leave most of the market to German producers.

  10. Embargos • Embargos are government orders which completely prohibits trade with another country. • If necessary, the military actually sets up a blockade to prevent movement of merchant ships into and out of shipping ports.

  11. Embargos • The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically and thus undermine the political leaders in charge. • EXAMPLE: the United Kingdom has placed an embargo on a Chinese toy-making company because they were using lead-based paint in their toys. UK no longer trades with this company. • EXAMPLE 2: US placed an embargo on Cuba after the Cuban Missile Crisis (still in effect today).

  12. Trade Barriers - Benefits • Most barriers to trade are designed to prevent imports from entering a country. • Trade barriers provide many benefits: • protect homeland industries from competition • protect jobs • help provide extra income for the government. • Increases the number of goods people can choose from. • Decreases the costs of these goods through increased competition

  13. Trade Barriers - Costs • Tariffs increase the price of imported goods. • Less competition from world markets means there is an increase in the price. • The tax on imported goods is passed along to the consumer so the price of imported goods is higher.

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