INTERNATIONAL UNIVERSITY OF EAST AFRICA

RESTRICTIONS IN INTERNATIONAL TRADE (PROTECTIONISM)

Trade restrictions are typically undertaken in an effort to protect companies and workers in the
home economy from competition by foreign firms. A protectionist policy is one in which a country
restricts the importation of goods and services produced in foreign countries.
Trade restriction refers to the various barriers that make the flow of goods and services between
countries immobile. If the barriers come from government policies, we call it trade protection.
These restrictions affect the demand for and supply of goods and services on international markets.
Specifically, trade protection prevents market forces from operating freely to determine the
equilibrium quantity and price. As a result, protection results in an inefficient allocation of
resources on a global scale.

Tariff Barriers in International Trade:

Barriers to Trade: These are obstacles that hinder the trade that takes place between countries.
There are many reasons why two countries could face trade barriers. For instance, something
simple like the distance between these countries could make it significantly costly for them to trade
with one another.

Tariffs Barriers
Tariffs are taxes imposed on imported goods. These are a common tool governments use to protect
their local suppliers from foreign competition. Tariffs work by increasing the price of other
countries' goods making the imported goods less competitive. In other words, local goods become
more attractive to domestic consumers. Tariffs impact the exporting country by cutting down the
demand for their products.
Tariffs also provide a source of revenue for the government. The governments in some countries
implement tariffs to increase their revenues because it may be difficult for them to collect taxes
otherwise.

 Ad-Valorem Tariffs
 Specific Tariffs
 Import Quotas
 Compound Duties
 Protective Tariffs
 Licenses
 Voluntary Export Duties
 Transit Duties.

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Non-Tariff Barriers:
Non-tariff barriers usually take the form of restrictions that are listed below:

 Quotas
 Voluntary Export Restraints
 Embargoes
 Technical Barriers to Trade
 Licensing
 Anti-dumping duties
 Countervailing Duties
 Safeguards
 Government Procurement
 Procedures and Formalities
Regulatory Barriers: These barriers are imposed by the government for various reasons, such as
to control pollution, ensure product standards, and maintain safety standards. These standards are
decided by the governments of different countries depending on their rules and regulations that
restrict unsuitable goods from entering the foreign market.
Quotas
Import quotas are a tool the government uses to target the quantity imported of a particular good.
In other words, when import quotas are applied, there is only a certain amount of quantity of a
good allowed to enter the domestic market.
Anti-Dumping Duties: When a domestic government applies a protectionist tariff on goods from
outside that deems priced below fair market value, it is known as an anti-dumping duty.
Trade Licenses
Granting licenses to specific individuals and/or businesses is one non-tariff barrier to trade. This
allows only certain people or companies to import goods from other countries. It contributes to
significantly reducing the number of goods coming from other countries.
Trade Sanctions
Sanctions are government acts that ban individuals and companies from doing business with a
country or certain entities in a country. Sanctions can make it hard for individuals or countries to
conduct trade. They are politically motivated, and the most recent examples include the
sanctioning of Russian banks by the US government in response to the Ukrainian crisis.

Effects of Trade Barriers

Tariffs, quotas, and other trade barriers are great at protecting the local producers of the protected
goods. These domestic producers can supply a higher quantity of goods at a higher price. But there
are negative effects associated with trade barriers:
Reduced competition. Barriers to trade aim to protect local producers from international
suppliers. This, in turn, reduces the competition in the market, which may cause local producers
to be less efficient and less innovative.

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 Harm to consumers. Consumers may be harmed as the price of goods that tariffs are applied on
increases. This will cause a decrease in consumers’ purchasing power.
Harm to other domestic producers. Barriers to trade can hurt domestic producers who rely on
imported inputs for their productions.
Potential trade wars. The country to which tariffs are imposed may respond by doing the same
thing. This is known as trade wars and harms consumers and producers in both countries as there
is less competition and prices of goods increase.

Reasons for the Restrictions:

 Protecting established domestic industries from foreign competition. If foreign goods and
services easily enter the domestic market, it increases domestic competition.
 Keeping infant industries until they become mature and internationally competitive. Some
countries want to make sure their strategic industries thrive. Such industries usually contribute to
national security, employment, technology, or value chains with various other industries.
 Securing domestic employment and income. Imports benefit foreign producers as money flows
from domestic to them. Besides, when imports increase, they will increase production. It creates
jobs and income in their country but not domestically.
 To generate government revenue. By imposing import tariffs, the government obtains a source
of income other than individual taxes or business taxes.
 Retaliating for similar restrictions imposed by trading partners. Countries do not like unfair
trade practices by their partner countries, for example, dumping. Hence, it is in their interest to get
even with the partner country.
 National Security Reasons: Barriers are also employed by developed countries to protect certain
industries that are deemed strategically important, such as those supporting national security.
Defense industries are often viewed as vital to state interests, and often enjoy significant levels
of protection. For example, while both Western Europe and the United States are industrialized,
both are very protective of defense-oriented companies.
 Retaliation Reasons: Countries may also set tariffs as a retaliation technique if they think that a
trading partner has not played by the rules. For example, if France believes that the United States
has allowed its wine producers to call its domestically produced sparkling wines "Champagne"
(a name specific to the Champagne region of France) for too long, it may levy a tariff on imported
meat from the United States.
 Protecting Consumers: A government may levy a tariff on products that it feels could endanger
its population. For example, South Korea may place a tariff on imported beef from the United
States if it thinks that the goods could be tainted with a disease.

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 Disadvantages of Trade Barriers:

 Trade barriers increase the cost to the company since they have to depend on domestic products
for raw materials due to restrictions on importing cheap foreign raw materials. It directly impacts
the final price of the goods and services, discouraging customers from buying them in the local
market.
 The diversified variety of goods available in the foreign market is not available in the domestic
market. Therefore, it decreases the competition and availability of diverse goods in the country. In
other words, an increase in the import price limits the goods’ choice in the market.
 Trade barriers can discourage the country from trading with other countries. The trade restrictions
bar the import of goods from other countries and sometimes the export of products to other
countries, affecting the foreign revenue, directly impacting the country’s overall revenue, and thus
decreasing the country’s

TRADE CREATION & TRADE DIVERSION