Trade between countries can be restricted on one side, bilaterally or multilaterally. Protectionism is used by governments to protect domestic industries by increasing the price or limiting the quantity of imported products that might have competitive superiority. The primary restrictions to trade that are implemented in protectionist policies are tariffs, quotas and non-tariff barriers.
Tariffs, also known as duties, are taxes imposed on specific imports by a government. Scientific tariffs are implemented to raise the cost of products to end users, with the intent of making imported goods as expensive or more expensive than products manufactured locally. Peril point tariffs are used to protect older and less efficient industries by setting taxes at a level that raises prices on imports to equal those of domestic products. Retaliatory tariffs can be put in place as a response to taxes that are being levied on the country’s exports.
Trade quotas limit the amount of designated products that can be imported over a specified period of time. These limitations favor local producers by capping the influx of imported competitive products, which increases demand for those produced locally. Quotas also can be used to protect against the dumping of products by an importer, which otherwise can result in precipitous price reductions that prevents domestic industry from competing. The limitation on supply also may serve to support the prices of both imported and domestically produced goods and products. The most extreme type of quota is an embargo, which prohibits the importation of specified goods, services and raw materials.
Non-tariff barriers generally are established based on manufacturing processes, product content or quality. Referred to as product standards, the benchmarks may be established based on environmental concerns, safety issues and the regulation of the use of substandard materials or processes. While there may be valid concerns, the ancillary result of product standards may also extend trade protection to domestic producers. For example, product standards in some countries prohibit the importation of unpasteurized cheese less than 60 days old, most of which comes from France. The prohibition of these types of cheeses, though based on health concerns, also benefits domestic producers in those countries.
After working for 21 years as a licensed adviser specializing in corporate and private finance, Scott Krohn began his writing career in 2008 covering a variety of topics including business, personal finance, health, and IT. He graduated from Cal State University, Long Beach with Bachelor of Arts degree.