Foreign & International trade policy

International Trade barriers

• Tariffs, quotas, and other trade restrictions discourage imports of foreign products into a country. Tariffs are taxes on imported products. Quotas are limits on the amount of imported products. The ultimate quota is an embargo, which is a complete stop on the import or export of a certain product.

DEFINITION OF 'TARIFF'

• A tax imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers.

5 reasons to set the tariffs:

• Protecting Domestic Employment (zashita vnutrennoy raboti)• Protecting Consumers (zashita potrebiteley)• Infant Industries (novaya otrasl’ promishlennosti)• National Security (natsionalnaya bezopasnost)• Retaliation (rasplata)

Types of Tariffs and Trade Barriers

• Specific tariffs• Ad valorem tariffs (according to value)• Licenses• Import quotas• Voluntary export restraints• Local content requirements

Price and Quality Effects 

• Trade restrictions generally raise the price of imported products and lower the quantity purchased. Consequently, buyers are more attracted to competing domestic products. In the short run, domestic firms benefit from trade restrictions.

Figure 1. Price without the influence of a tariff

Figure 2. Price under the effects of a tariff

Tariffs and Modern Trade

• The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). • Since the 1930s, many developed countries have reduced tariffs and

trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement on binding agreements reduces uncertainty.

Quota

• A government-imposed trade restriction that limits the number, or in certain cases the value, of goods and services that can be imported or exported during a particular time period. Quotas are used in international trade to help regulate the volume of trade between countries.

• Quotas are different than tariffs (or customs), which places a tax on imports or exports in and out of a country. Both quotas and tariffs are protective measures imposed by governments to try to control trade between countries.

Non tariff barriers

• A form of restrictive trade where barriers to trade are set up and take a form other than a tariff. Nontariff barriers include quotas, levies, embargoes, sanctions and other restrictions, and are frequently used by large and developed economies.

• The End

• Any questions?

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