Presentation on trade barriers

What are they?

A government-imposed restriction on the free international exchange of goods or services.
Governments or public authorities employ trade barriers, such as tariffs, to control the free
inflow of international goods and services. Although these barriers often discourage trade
between nations, they come in handy when a government wants to improve the consumption
of local goods, create local employment, foster national security and increase national
revenue.

Trade barriers are generally classified as

1. import policies reflected in tariffs and other import charges, quotas, import licensing,
customs practices,
2. standards, testing, labeling, and various types of certification
3. direct procurement by government,
4. subsidies for local exporters,
5. lack of copyright protection,
6. restrictions on franchising, licensing, technology transfer,
7. restrictions on foreign direct investment, etc.

Importance
Advantages:

Increased Consumption of Local Goods

Duty tax increases the overall cost of imported goods and services. When a government levies
this tax on imports, it aims to discourage local consumers from importing. As a result, the
consumption of locally-produced goods increases since there are fewer substitute or
alternative goods. For example, the gas-guzzler tax imposed by the United States government
on fuel-inefficient foreign-made vehicles makes them cost more than vehicles manufactured
locally. Many consumers will, therefore, go for domestic car makes.

Increased Domestic Employment

As the consumption of local goods increases, so does the demand. To satisfy the growing
consumer demand, domestic producers have to produce more products. This, according to
the Economic Policy Institute, a Washington-based non-profit think tank, should lead to the
creation of more jobs. With more jobs available, unemployment rates will go down, and
previously unemployed people will have an income they can use to improve their welfare.

Enlarged National Revenue

Levying tariffs on imported goods and services is a strategy governments can use to increase
national revenue. The duty from importers goes directly to the government’s revenue
collection agency. Although tariffs are generally designed to discourage importation, some
goods -- such as apparel and household appliances -- are so essential importers won't give
them up. When the government raises tariffs on such goods, or starts taxing goods that were
previously imported free of duty, it collects more revenue. The National Priorities Project, a
non-profit organization that focuses on federal budget research, projects that custom duties will
contribute 1 percent -- about $33 billion -- to the projected $3.3 trillion tax revenue for the year
2015.

Improved Consumer Protection

The government sets import regulations on some consumer goods to ensure they are safe
for domestic use or consumption. When importing foods, medicines or cosmetics into the
US, for instance, importers must ensure the manufacturers, producers or handlers of these
products are registered with the U.S. Food and Drug Administration. The imports must also be
inspected by the FDA before they are allowed into the country.

Disadvantages
Barriers Result in Higher Costs
Trade barriers result in higher costs for both customers and companies. As a manufacturer or
distributor, you may need to pay more for the goods required to run your business smoothly.
For example, if you're selling electronics, importing laptops and cameras will be more
expensive unless you stick to domestic brands. Therefore, you will need to raise the prices
customers must pay. For instance, the proposed increased tariffs on Chinese imports in 2018
could result in higher prices next time you are in the market to buy your next smartphone,
tablet or laptop. Due to increases like these, the National Taxpayers Foundation Union
estimates that the annual cost of tariffs in the United States economy is $41.65 billion.

Limited Product Offering

With free trade, customers have access to more products than ever before including high-end
goods that were not otherwise available in their region. Imposing trade barriers has the
opposite effect. Now, the increase in import costs translates into a limited choice of products.
Small businesses, for instance, might not be able to afford to pay these costs so that they will
offer fewer goods. Despite this fact, import restrictiveness remains high in developing
countries, especially East and South Asia. Many governments put trade restrictions in place to
reserve the domestic industry and protect special interests. In the long run, this practice affects
economic growth and reduces overall economic efficiency.p

Loss of Revenue
Many companies make their money off international trade. Automobile manufacturers, for
example, sell cars in foreign markets. Trade barriers can limit their ability to export products,
leading to loss of revenue and decreased profit. On a larger scale, trade barriers affect
economic growth. For example, in developing countries which are unable to export goods
because of high tariffs, trade barriers can limit their ability to prosper and expand their
operations. Furthermore, it has a direct impact on wages and international relations.
Fewer Jobs Available
Nowadays, many organizations have offices and factories in multiple locations across the
world, which allows them to employ locals and pay higher wages compared to the national
average. Trade barriers limit their expansion and affect the labor market. As a result, fewer
jobs will be available for those living in developing countries.

Higher Monopoly Power

Free trade promotes competition among different countries, which forces local companies to
keep product prices at a reasonable level. Trade barriers have the opposite effect. They
increase monopoly power and limit competition allowing producers to charge higher prices.
Additionally, limiting the competition leads to inflation, causing a decline in customer spending
power. It might also stifle innovation, since protectionism provides no incentive for a company
to invest in technological advancement. Since there is less incentive to provide superior
products, quality will decline over time.

Effects on Pakistan’s trade

 In order to protect domestic industries, the government may import trade barriers. During
the last three decades, trade barriers have been drastically reduced under obligations
of WTO. Due to freedom in trade, competition has increased, forcing industries to improve
their productivity to compete in this free market. However, there are still some trade
barriers which are used to block market access. Technical Barrier to Trade (TBT) is one
of such barriers. In this study the impact of TBT on export performance of Pakistan textile
industry has been empirically evaluated. A model was framed which represented TBT and
export performance as variables. Primary data was collected from top textile firms of
Pakistan. Multiple regression analysis was applied on the primary data. Results indicated
that TBT has positively affected the performance of Pakistan textile industry.
 More employment opportunities were generated.
 Increased GDP.
 Pakistan’s import reduces which contributes to positive balance of payment.
 More money will increase investments and hence more high quality products can be made
 They can be exported to earn more money.