Trade Barriers Quiz: Tariffs and Restrictions

Study Notes

Trade Barriers

Trade barriers are associated with the issuance of licenses, and can be in the form of quotas, Voluntary Export Restraints (VER), Local Content Requirements, and Technical Regulations, Standards, and Safety.

Voluntary Export Restraints (VER)

A VER is a trade barrier where an exporting country voluntarily limits the amount of goods it can export to another country.
VERs often arise from requests by the importing country to protect its domestic industries.
Exporting countries may prefer VERs over tariffs or quotas.
A notable example is Japan's VER on auto exports to the U.S. in the 1980s.

Local Content Requirements

Instead of placing a quota on the number of goods that can be imported, the government can require that a certain percentage of a good be made domestically.
The restriction can be a percentage of the good itself, or a percentage of the value of the good.
Example: a restriction on the importation of computers that 25% of the components used to make the computer are made domestically, or that 15% of the value of the good must come from domestically-produced components.

Technical Regulations, Standards, and Safety

Technical regulations and standards set out specific characteristics of a product, such as its size, shape, design, functions, and performance, or the way it is labeled or packaged.

Tariffs

A tariff is a tax levied on imports or exports.
The money collected under a tariff is called a duty or customs duty.
The benefits of tariffs are uneven, with the government and domestic industries benefiting from increased revenue and reduced competition.

Reasons for Tariffs and Trade Barriers

Protecting domestic employment: tariffs can be used to protect domestic industries from imported goods, reducing the possibility of increased competition and higher unemployment.
Protecting consumers: tariffs can be used to protect consumers from harmful products.
Infant industries: tariffs can be used to protect infant industries in developing countries.
National security: tariffs can be used to protect strategically important industries that support national security.
Retaliation: tariffs can be used as a retaliation technique if a trading partner is not playing by the rules.

Licenses and Import Quotas

A license is granted to a business by the government, allowing the business to import a certain type of good into the country.
An import quota is a restriction placed on the amount of a particular good that can be imported.

Description

Test your knowledge about tariffs, taxes levied on imports or exports. Learn about the reasons why tariffs and trade barriers are used, such as protecting domestic employment and industries. Explore the impact of competition from imported goods on the economy.