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Trade Barriers: Governmental

Influence on Trade
Presented By:
Jatin Vaid

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• Company’s performance, ability to compete
and survival depends on government’s trade
• Policies may limit or enhance the ability to sell
• Restrictions (Tariffs, etc.) or Competitive
support (subsidies, etc.)

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Reasons for governmental intervention

• Preventing Unemployment
Economic • Protecting Infant Industries
• Promoting Industrialization
Reasons • Improving Comparative Position

• Maintaining Essential industries

Non – Economic • Dealing with unfriendly countries
• Maintaining Control
Reasons • Preserving National Identity

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Reasons for Government’s

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1.1 Preventing Unemployment

• Economic employment of full employment

• Gaining jobs by limiting imports
• Other countries may retaliate
• Impact on other industries

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1.2 Protecting Infant Industries

• Government should shield an emerging industry

from foreign competition by guaranteeing it a
large share of domestic market until it is ready to
• Efficiency gains take time
• Economies of scale & experience curve translate
into higher productivity
• Benefits include higher employment, lower social
costs and higher tax revenues

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1.3 Promoting Industrialization

• Higher manufacturing base leads to higher per

capita income
• Restricting imports leads to developing an
industrial base
• Increase FDI
• Export – led development for local consumption
• Nation building: Build infrastructure, rural
development, skill building

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1.4 Improving Comparative Position

• Nation’s absolute economic welfare compared

with other nations
• Balance of trade adjustments
• Gaining access to foreign markets
• Restrictions as bargaining tool
• Controlling prices

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Reasons for Government’s


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2. Non – Economic Reasons
2.1 Maintaining essential industries:
• Protect essential domestic industries
• Financial inclusion of necessities
• Rural penetration at affordable prices
• Maintaining competitive advantages in
essential industries.
• Water, electricity, banking, railways, etc.

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2.2 Dealing with unfriendly countries

• National defense
• Trade of strategic goods – data encryption
technology, arms & ammunitions, banking,
• Used as a method to achieve political

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2.3 Maintaining Control

• Governments give aid to and encourage

imports from countries that join a political
alliance or vote in a preferred way within
international bodies.
• Political motives

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2.4 Preserving national identity

• Unifying sense of identity to be sustained

• National culture to be protected
• Defining boundaries for trade

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Instruments of Trade Control

• Import tariffs
Tariff • Export Tariffs
Barriers • Transit Tariffs

• Subsidies

Non – Tariff •

Tied Aids
Minimum Sale Price
• Quotas
Barriers •

Buy – Local Legislation
• Specific Permissions Required

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Tariff Barriers
• Directly affect the prices of goods traded
• Also called Duty or tax levied on goods traded
• Most common type of trade control
• Specific duty; Ad – Valorem duty; Compound

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Types of tariffs
i. Import tariffs: Collected by importing
ii. Export tariffs: Collected by exporting country
iii. Transit tariffs: Collected by the country
through which the goods have passed.

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Non Tariff Barriers
• May directly affect either price or quantity of
goods traded internationally.

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Types of Non – Tariff Barriers
i. Subsidies: Direct assistance to companies,
making them more competitive.
ii. Tied Aids: Loans to other countries, a part of
which is spend in donor country. E.g.
Infrastructure, telecommunication.
iii. Minimum sale price: Goods sold at a price
set by authorities after clearances.

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iv. Quotas: Limiting the quantity of goods
imported or exported at a given time frame.
v. Embargoes: Prohibits all forms of trade from
a country or a category of goods.
vi. Buy – Local: Favoring domestic producers or
goods of local origin.
vii. Specific Permissions: import or export

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