International trade barriers are a major concern for business owners. This is especially true in the year 2021, as many countries around the world are implementing trade barriers and tariffs to protect their own industries.

Due to different institutions like the World Trade Organization (WTO), an immense reduction in international trade is recorded. Ever since the role of global commerce increased the need for trading barriers has become vital. But, even then, companies have to face problems, like car transports, exports and imports, and so on.

In this article, we will delve into details about the reasons behind international trade, international trade barriers, its common types, and everything in between.

What is International Trade?

In simple words – International trade means the exchange of goods or services between the countries.

Global consumers are the new target audience for companies now. Therefore it has increased the opportunity for buying better goods and services that were not available previously. International trade is the key to the rise of the global economy. The prices, demand, and supply both affect global events.

For instance, in case of a political change in Asia, it may increase the labor cost. So an American service company based in Sri Lanka would increase the price for the service or product sold to the consumer in their local mall.

WTO, UNCTAD, and some of the other governmental institutions set up the regulations for internal trade. They deal with the export and import.

What is meant by the International Trade Barrier?

Now that you have a basic understanding of international trade, you also need to know about trading barriers.

International trade barriers are the government-imposed restrictions and requirements. It’s a way to prevent the negative balance between exports and imports.

Trade Barriers

Every country aims for higher exports and lower imports. However, these restrictions can also affect the ratio of imports and exports. Sometimes trading barriers are natural too like geographical remoteness of an area or even a language barrier.

However, there are two major types of international barriers that businesses and service providers need to keep in mind;

    • Tariff

It is a system of duties levied on the goods either imported or exported. These are implemented by the government on international trade.

    • Non-Tariff

These are the laws or regulations a country imposes to protect its domestic industries against foreign competition. One downside is that it decreases the market opportunities for exports. Sometimes other countries are given an unfair competitive advantage to products from specific countries.

Impact of Tariffs and Non-Tariffs

The main goal of the government is to ensure international trade. Once these trading barriers are implemented they have an impact on the trade.

    • Tariffs

These are the major part of the domestic policies to protect the national product. Collected by the government, it increases the prices of goods or services to the consumer.

The main purpose of the tariff is to limit imports and to raise revenue. However, a tariff is a tax imposed on imported goods. A tariff comes in various forms.

The consumers of the exported country have to pay the amounts. Imported goods are less appealing due to imposed tariffs.

Another similar trade barrier is Quota.

    • Quota

It is a limited amount of goods that can be imported. It can be voluntary or legally enforced, depending on the political conditions between the countries. However, the effect of quotas and tariffs are the same.

Some of the other forms of tariffs also include;

        • Tariffs on various goods like textiles, chemical materials, minerals, etc.
        • Government issues licenses and permissions like the right to export/import goods.
        • Ad valorem taxes (VAT)

Result: Tariffs have a negative impact on international trade because they reduce global commerce efficiency and impose many restrictions.

    • Non-Tariff

They usually take the form of restrictive licensing. Permits for importing and exporting the products and services are limited. Since non-tariffs are imposed to protect the local products and industries against foreign competition they create technical trade barriers.

Most international trade barriers have a similar principle i.e. imposing the trade costs and the product prices.

In case two countries are continuously using trade barriers (betting against one another) it may even result in a trade war.

International trade barriers come in different forms.

However, some of the other most common non-tariff barriers are mentioned down below;

        • Subsidies
        • Import policies
        • Quotas
        • Import quality regulations
        • Foreign standards
        • Investment barriers etc.

Result: Limited number of products imported will make prices go higher for the local consumer.

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