Restrictions on international Trade

In despite the of the strong theoretical instance that have the right to be do for free international trade, every country in the civilization has erected at least some barriers to trade. Trade restrictions are typically undertaken in an initiative to protect companies and workers in the home economy from compete by foreign firms. A protectionist policy is one in i beg your pardon a country restricts the income of goods and services created in foreign countries. The slowdown in the U.S. Economy late in 2007 and in 2008 has developed a new round of protectionist sentiment—one that came to be a aspect in the 2008 U.S. Presidential campaign.

You are watching: What is the effect of import restrictions on prices?

The unified States, for example, offers protectionist policies to border the amount of foreign-produced sugar coming into the joined States. The impact of this plan is to reduce the it is provided of sugar in the U.S. Market and increase the price of sugar in the united States. The 2008 U.S. Farm yard Bill sweetened points for street growers also more. It raised the price they room guaranteed to receive and restricted imports of foreign sugar so that American growers will constantly have at the very least 85% that the residential market. The invoice for the first time set an income limit—only growers who incomes fall listed below $1.5 million every year (for couples) or $750,000 for people will receive straight subsidies (“Who wants to be a Millionaire?” The wall surface Street Journal, might 14, 2008, p. A20).

The U.S. Price of street is virtually triple the human being price of sugar, for this reason reducing the quantity consumed in the unified States. The routine benefits growers of street beets and sugar cane at the price of consumers.


Figure 17.7. The influence of Protectionist Policies. Protectionist policies minimize the quantities of foreign goods and also services gave to the country that imposes the restriction. Together a result, together policies transition the supply curve come the left for the an excellent or service whose imports room restricted. In the situation shown, the it is provided curve move to S2, the equilibrium price rises to P2, and also the equilibrium quantity drops to Q2.

In general, protectionist policies implemented for a particular good always reduce its supply, raise its price, and also reduce the equilibrium quantity, as shown in figure 17.7 “The affect of Protectionist Policies”. Protection regularly takes the kind of one import taxes or a limit on the quantity that deserve to be imported, but it can likewise come in the kind of spontaneous export restrictions and other barriers.


A tariff is a taxes on imported goods and also services. The median tariff on dutiable imports in the United states (that is, those imports on i m sorry a tariff is imposed) is about 4%. Part imports have actually much higher tariffs. For example, the U.S. Tariff on imported frozen orange juice is 35 cent per gallon (which quantities to around 40% the value). The tariff ~ above imported box tuna is 35%, and the tariff top top imported pair of shoes ranges between 2% and also 48%.

A tariff raises the expense of marketing imported goods. It for this reason shifts the supply curve for items to the left, together in number 17.7 “The influence of Protectionist Policies.” The price that the protected great rises and also the quantity obtainable to consumers falls.

Antidumping Proceedings

One that the most typical protectionist steps now in usage is the antidumping proceeding. A domestic firm, confronted with competition by a foreign competitor, records charges through its federal government that the international firm is dumping, or charging one “unfair” price. Under rule spelled the end in worldwide negotiations that came before approval of the human being Trade Organization, an unfair price was defined as a price below production expense or below the price the international firm charges for the same great in its own country. While these interpretations may seem simple enough, they have actually proven to be rather troublesome. The definition of “production cost” is a thoroughly arbitrary procedure. In defining cost, the government company invariably consists of a specification the a “normal” profit. That typical profit have the right to be absurdly high. The United claims Department that Justice, i m sorry is the U.S. Firm in fee of determining whether a foreign firm has actually charged one unfair price, has sometimes identified normal profit prices as exceeding production price by fine over 50%, a rate far higher than exist in many U.S. Industry.

The practice of a international firm charging a price in the United claims that is listed below the price it charges in that is home country is common. The U.S. Industry may be more competitive, or the international firm might simply be trying to make its product attractive to U.S. Buyers that space not yet accustomed to its product. In any kind of event, together price discrimination behavior is not unusual and also is no necessarily “unfair.”

In the united States, when the department of righteousness has determined that a international firm is guilty that charging one unfair price, the U.S. Worldwide Trade commission must determine that the foreign firm has done material injury to the U.S. Firm. If a U.S. Firm has suffered a palliation in sales and also thus in employment the will typically be discovered to have suffered product harm, and also punitive duties will certainly be imposed.


A quota is a direct restriction top top the complete quantity the a good or organization that may be imported during a stated period. Share restrict total supply and therefore increase the residential price that the an excellent or company on i m sorry they space imposed. Quotas typically specify the an exporting country’s share of a residential market may not exceed a particular limit.

In part cases, quotas are set to progressive the residential price come a particular level. Congress requires the room of Agriculture, for example, come impose quotas on imported sugar to store the wholesale price in the joined States over 22 cents per pound. The world price is frequently less 보다 10 cents per pound.

A quota restricting the amount of a particular good imported into an economic situation shifts the supply curve to the left, together in figure 17.7 “The impact of Protectionist Policies.” that raises price and also reduces quantity.

An important distinction between quotas and tariffs is the quotas do not increase costs to international producers; tariffs do. In the short run, a tariff will mitigate the revenues of foreign exporters that a great or service. A quota, however, raises price however not expenses of production and thus may increase profits. Due to the fact that the quota imposes a limit on quantity, any kind of profits it creates in other countries will not induce the entry of brand-new firms the ordinarily eliminates earnings in perfect competition. Through definition, entry of brand-new foreign this firm to earn the profits accessible in the United claims is blocked by the quota.

Voluntary export Restrictions

Voluntary export constraints are a form of trade barrier by which foreign firms agree to border the quantity of products exported come a specific country. They came to be prominent in the United says in the 1980s, as soon as the U.S. Government encouraged foreign exporters that automobiles and steel to agree come limit their exports come the united States.

Although such constraints are dubbed voluntary, they generally are agreed to just after push is used by the nation whose sectors they protect. The unified States, for example, has actually succeeded in pressuring countless other countries to accept quotas limiting their exports of products ranging indigenous sweaters to steel.

A voluntarily export restriction works specifically like an simple quota. That raises prices because that the domestic product and also reduces the amount consumed the the great or service affected by the quota. The can likewise increase the profits of the firms that agree come the quota since it raises the price they get for their products.

Other Barriers

In addition to tariffs and also quotas, steps such as security standards, labeling requirements, air pollution controls, and also quality constraints all may have actually the effect of restricting imports.

Many constraints aimed at protecting consumer in the residential market create obstacles as a completely unintended, and also probably desirable, next effect. Because that example, constraints on insecticide levels in foods items are often more stringent in the United claims than in other countries. These requirements tend come discourage the income of international goods, but their major purpose appears to it is in to safeguard consumers native harmful chemicals, no to limit trade. But other nontariff obstacles seem to offer no purpose other than come keep foreign goods out. Tomatoes created in Mexico, because that example, complete with those created in the unified States. But Mexican tomatoes have tendency to be smaller than U.S. Tomatoes. The United says once enforced size constraints to “protect” U.S. consumers from tiny tomatoes. The result was a highly effective trade barrier that protected U.S. Producers and also raised U.S. Tomato prices. Those constraints were denomination under terms of the north American cost-free Trade Agreement, which has actually led come a big increase in U.S. Imports of mexican tomatoes and a reduction in U.S. Tomato production.

Trade limitations Video

Why do nations restrict trade? watch this video clip to learn about the major arguments in donate of trade restrictions, including: protecting residential jobs, leveling the play field, providing government revenue, supporting nationwide defense, protecting national interests, protecting child industries, and also promoting exports.

See more: Distance Between Rochester And New York City From Rochester (New York)

Types that Trade constraints Video

This video details the means a country might restrict trade and explains the influence of these restrictions.