For as long as people have engaged in trade, they've also created barriers to trade, to protect their own interests and to raise money. Trade barriers, of course, continue to this day. In this video, we'll explore the many ways that nations who work to impede trade and the reasons they do so. Trade barriers are government policies which restrict international trade. The reasons for trade barriers are many : protecting domestic industries from foreign competition, saving domestic jobs from cheap foreign labor, reducing national trade deficits, assisting and protecting young start-ups allowing them to grow, protecting against dumping, which we will soon to find in this video, and increasing national revenue with import tariffs and duties. Types of trade barriers include: import tariffs, import quotas, anti-dumping rules, export subsidies, and non-tariff barriers. Let's look at each of these separately. Let's begin with tariffs. A tariff is a tax on imported goods charged when the goods enter a country. For example, the US charges a 2.5 percent tariff on autos imported from the European Union. In turn, European Union charges a 10 percent tariff on autos imported from the US. US charges a 30 percent tariff on solar panels imported from China. This helps the few remaining US panel manufacturers, but it's hurt US panel installers and the employees due to higher prices. China imposes a stiff 47 percent tariff on imported US beef. The map at the right shows average tariff rates for countries around the world. As example, the US has an average tariff rate of 3.65 percent on its imports. The EU has a tariff of 5.23 percent on it's imports. Australia has one of the lowest tariff rates at 2.45 percent. China's average tariff rate is 9.77 percent, and India has one of the highest tariff rates at 17.14 percent. Pause the video for a moment to examine more closely the current range and pattern of national tariffs. A quota is a cap or a limit on annual imports of a particular product into a country. Absolute quotas are a hard cap, a quantity not to be exceeded. With tariff rate quotas, tariff rates increase for any imports that exceed the quantity cap. So in that case, an importer enjoys a low tariff until the cap is exceeded, after which the tariff increases. As examples of quotas, China imposes quotas on grain imports from the US, such as a gap of wheat of 9.64 million tons annually, corn is kept at 7.2 million tons and rice at 5.32 million tons. Korean quotas on US auto imports are 50,000 per year. Dumping is selling imported products at below home-country production costs. As examples of dumping, the European Union accuses China of dumping bicycles and charges a dumping duty of 48.5 percent on imported bicycles and India charges dumping duties on jute products from Bangladesh. Exports subsidies are another trade barrier where governments provide financial support for exported products. Examples of quotas include, European Union accuses the US of subsidizing Boeing through defense contracts. In turn, the US accuses the EU of direct financial subsidies to Airbus, India subsidizes its sugar exports, and Thailand subsidizes rubber exports. These are all examples of export subsidies. Non-tariff barriers to trade are impediments to trade that are not financial in nature. Non-tariff barriers can include complex rules of origin, excessive importation documentation, lengthy customs procedures, packaging regulations, product quality requirements, and many, many others. For example, EU will not allow beef grown with hormones to be imported into the European Union. This first picture on the right shows the ratio of non-tariff barriers to tariffs over a 10 year span. As you can see, non-tariff barriers exceeded tariffs by a ratio of three to one, indicating their importance as a barrier to free trade. The second picture tracks a number of non-tariff barriers over time. This number has been increasing slowly over that time and apparently as tariffs decline due to trade agreements, non-tariff barriers have been increasing. A trade agreement is a treaty between two or more countries and/or trading blocks to reduce and limit barriers to trade. A bilateral agreement is when two countries enter into a trade agreement. Multiple countries can enter into regional agreements, and global agreements are when most countries of the world agree to a set of trading policies. This first graph shows that the number of trade agreements has been rising rapidly since 1990 as national economies have globalized. Also interesting is the growing importance of service trade agreements. The second graph plots the rapid decline in average tariff rates over the past 30 plus years. This indicates the profound effect of international trade agreements during this period. The reasons for trade barriers are many, generally they are to protect domestic economy, industries and jobs. Trade barriers include tariffs, quotas, dumping, subsidies, and bureaucracy. Happily, international trade agreements have greatly reduced international tariffs in recent decades. In the next video, we will more closely examine the scale and scope of international trade agreements. Stay tuned.
