Global Economy Class
Trade restrictions, also known as trade barriers, are policies made by governments to restrict or lower volumes of international trade. Some of the adverse effects of this are reduced import levels, increased prices for consumers, and significant economic losses. The most common reasons often offered in favor of trade restrictions are to cushion upcoming local industries, called infant industries, protection from dumping, and improve deficits in trade. Many countries impose trade barriers to help new domestic industries develop and become competitive and to discourage businesses from moving out. These barriers increase the costs of operations, increasing the overall price of the products or services, and consumers have no choice but to go for cheaper domestic alternatives of different quality. Trade barriers increase the costs of imports, lowering their demand, which makes up for any trade deficits. Also, trade restrictions prevent other countries from “dumping” cheaper product substitutes that reduce consumption of locally made goods, which harms the domestic industries.
If all foreign trade were eliminated from the US, living standards will decrease. Ceasing all trade with other countries can be problematic since no country can produce everything it needs. Essential imports that contribute to improving living standards will lack. Eliminating imports into the US will cause other countries to retaliate and restrict exports from the US. People and industries dependent on international trade will suffer losses, and the nation’s Gross Domestic Product (GDP) will reduce. Low output levels also decrease income availability, which translates to lower living standards.
A country with a large endowment of natural resources, labor, and climate will have a higher comparative advantage as opportunity costs will be significantly lower than those of countries with smaller endowments. Factor endowments reduce the costs of production, which enables a country to price its products and services competitively and still make profits.
If a country imposes tariffs on imports, other countries can respond by also imposing tariffs on its exports. Tariffs also reduce the income a country gets from exports, meaning it will have less to spend on imports. Export volumes in countries with tariffs will reduce as buyers have little or no money to spend.