Consequences of Trade Restrictions
Consequences of Trade Restrictions

A combination of tariffs, quotas, and subsidies can serve economic, and sometimes political, objectives, but they can also impose significant costs. Tariffs or quantitative restrictions protect domestic industries and workers from foreign competition by raising the prices of imported goods. In this respect, some argue that import restrictions should be viewed as a tax on domestic consumers. According to some experts, the costs of protecting the jobs of workers in vulnerable industries, which are ultimately borne by taxpayers or consumers, far exceed the potential cost of retraining and finding new jobs for those workers.

According to the Institute for International Economics, trade barriers cost American consumers $80 billion a year, or more than $1,200 per family, in increased prices for goods such as sugar (and foods made with it) and appliances made from steel. The Organization for Economic Co-operation and Development estimated that in 2004, American consumers paid $1.5 billion because of U.S. sugar policies (Smith, 2006).

A similar analysis can be applied to export subsidies. Subsidizing exports can cost governments much more money than would programs designed to shift uncompetitive production into more efficient or internationally competitive sectors. An example of this can be seen in the American Automobile Industry.

Another criticism of import restrictions and export subsidies is that they discourage the protected firms and industries from making the changes necessary to challenge foreign competition. Once the protected companies have received government support in the form of import restrictions or export subsidies, they may have less incentive to improve their efficiency and management, eventually even becoming dependent on government support for their survival.

Finally, trade restrictions are a major impediment to development efforts.  Developing countries are unable to sell their products abroad because of high tariffs and quotas.  Additionally, their domestic markets are flooded by cheaper, subsidized products from abroad.

In response to the known problems associated with trade restrictions, the World Bank offers three suggestions that the G20 countries could adopt.  These leading countries could:

  1. “Commit to greater transparency by agreeing to provide quarterly reports on new trade restrictions, and industrial and agricultural subsidies to the WTO;
  2. Advocate greater Aid for Trade for low income countries; and
  3. Seize the opportunity to support global trade in a time when it desperately needs to be supported (World Bank, 2009)

Learn about the debate concerning trade restrictions: Genetically Modified Organisms Still Source of US-EU Tension.