BARRIERS TO TRADE How do we keep trade from happening? 1

Restricting International Trade Some oppose trade cause it can replace local workers and businesses These people look for ways to prevent trade: Tariffs Quotas 2

Tariffs Def. – Tax placed on imports to increase their price locally Protective Tariff – Protects less efficient domestic industries U.S. cost to produce pencil - $1 U.S. cost to import pencil - $0.35 Tariff - $0.95 Cost of foreign pencil - $1.30 Revenue Tariff – Generates revenue for government without prohibiting trade If tariff above was only $0.35 the foreign pencil would be cheaper 3

Tariffs Traditionally tariffs were meant to produce revenue Now only small percentage of government income is from tariffs Tariffs protect some people at the expense of others Tariff on foreign steel protected U.S. jobs but local cost of steel went up Tariff on Chinese tires protected U.S. jobs but caused increase in tire prices locally 4

Quotas Def. – Limit on amount of goods allowed into a country Sometimes foreign goods so cheap tariffs won’t help Quota can be set as low as 0 Allows domestic producers to keep prices high President imposed quota on Japanese cars Americans had limited selection of cars to buy Prices of cars higher than they would have been otherwise 5

Other Barriers Embargos – Government order prohibiting movement of goods to a country Inspections – Foreign foods subject to rigorous health inspections locally grown food doesn’t have to pass License – May require country to go through lengthy application & approval process Health Concerns – Some countries claim certain products from other countries may cause health issues Nationalism & Culture – Europeans often claim they like regional & traditional foods instead of foreign foods 6