Trade Barriers

​Trade barriers are natural or man-made obstacles to voluntary trade. Natural trade barriers include mountain ranges, deserts, rainforests, or lack of access to bodies of water. In Europe, the Alps make it difficult for northern Italy to trade with Switzerland. The countries are building tunnels through the mountains to help make trade easier. Political trade barriers are policies passed by a government to regulate trade.

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Trade is an important part of every country’s economy. However, countries sometimes set up trade barriers to restrict trade because they want to produce their own goods and sell them in their own country. To limit or control trade, countries set up trade barriers, such as tariffs, quotas, and trade embargoes.

​Tariffs are taxes placed on imported goods. Tariffs are used to protect a country’s own businesses from foreign competition. The added tax makes an imported good more expensive, thus encouraging the country’s consumers to buy domestically produced items.

When countries outside of the European Union want to sell their goods in the EU, they must pay tariffs. This makes the non-EU products more expensive than the products made by EU members. Which would you buy? Example: If a US company wants to export fruit to a country in the EU, the US company must pay a tariff which makes US fruit more expensive.

​Quotas are restrictions on the amount of a good that can be imported into a country. They are used to prevent too much of a good from entering a country. When there is too much of a good, prices fall and businesses don’t make a profit. Quotas limit the amount of goods available, which causes prices to rise. They help protect a country’s own businesses from foreign competition.

The European Union places a quota on the amount of steel that can be imported from certain countries. The effect is similar to a tariff, because it makes steel from those countries harder to get, and more expensive. This helps steel producers within the EU sell more steel.

​Embargoes are a political barrier to trade. In an embargo, a nation forbids trade with another country. Refusing to trade with another country is a way to hurt it economically.

Recently, the European Union began placing embargoes on the sale of certain weapons and other technologies to Iran. This was done because the countries of the EU suspected Iran was trying to build nuclear bombs. EU countries hope that the embargo will make it difficult for Iran to build this type of weapon.