International trade has seen immense growth and has been the backbone of many economies around the world. Globalization has brought many countries together to form trading partnerships and establish trade deals that would assist in better trade relations. However, as we all are aware, few countries still resort to protectionist policies that help them restrict free trade in their domestic markets. Tariff and non-tariff barriers are the two most commonly used methods to restrict imports and promote exports. It is essential to understand the difference between these two types of barriers to have a better picture of how international trade works.
Tariff barriers, also known as customs duties, are taxes that are imposed on imported goods or services. These taxes are usually calculated as a percentage of the imported goods or services' price. Tariffs are nothing but a form of protectionism by which a country tries to encourage its domestic industries by imposing import taxes on similar products sourced from other countries. The main purpose of tariff barriers is to increase the cost of imported goods to make them expensive than their domestic counterparts. This increased price discourages consumers from buying imported products and, in turn, helps promote sales of domestic products. Tariff rates can vary from product to product, country to country and can sometimes be as high as 100%.
Non-tariff barriers, on the other hand, are a far more complex set of regulations that aim to restrict imported goods' entry into a country without an actual tax being levied on them. These regulations can be in the form of quotas, subsidies, licensing, different standards and technical regulations. Non-tariff barriers play a critical role in protecting domestic industries and businesses from international competition. They primarily affect the quality, quantity, and availability of goods or services that are imported into a country.
An essential feature of non-tariff barriers is that they are specific to the type of goods being imported. For instance, the regulations for importing automotive products may differ from the regulations for importing agricultural goods. These inherent differences mean that regulations may vary across different industries and different countries.
Quotas are one prominent example of the use of non-tariff barriers. Quotas are a type of regulation by which a specific limit is imposed on the quantity of an imported good that can enter a domestic market during a specified period. When this quota is reached, no further imports of the same product are allowed. Quotas are often justified by the arguments that limiting foreign competition would protect domestic jobs and producers. However, quotas also have the potential to raise the cost of imported goods, as the supply is limited, and the domestic market has to pay a higher price for the same product.
Subsidies are another example of non-tariff barriers, which affect international trade, and it works the other way around. When domestic producers benefit from subsidies, they can sell their goods at a lower price than international competitors. This favorable pricing will cause foreign competitors to lose their market share, as the customers tend to choose goods that have lower pricing. In the long run, this can cause the disruption of international markets, which would harm the overall economic development of countries.
Technical barriers to trade (TBTs) are a set of regulations imposed by countries to protect the health, environment and safety of the citizens of that country. The main purpose of TBTs is to ensure that imports meet specific technical standards and regulations that reflect their own domestic regulations - this also includes sanitation and public health requirements. However, TBTs can also act as non-tariff barriers when they assume protectionist behavior. International organizations such as World Trade Organization (WTO) have been established to assist countries who face these kinds of challenges, ensuring that in most instances, TBTs are only applied if truly necessary.
In conclusion, the key differences between tariff barriers and non-tariff barriers are quite apparent. Tariff barriers are taxes levied on imports to protect domestic industries and businesses from foreign competition to promote local production. Non-tariff barriers are essentially regulations or taxes imposed on imports that do not come in the form of tariffs, such as quotas, subsidies, technical regulations, and licensing. Countries use these methods of trade protectionism to safeguard domestic industries and ensure local production is favored over foreign competition. If implemented and monitored correctly, tariffs and non-tariff barriers can play an important role in promoting domestic industries and strengthening local economies. However, if left unchecked or used too extensively, it can stifle competition, artificially extend national monopolies over time, and restrict the flow of goods, which can harm global economies. As such, it is important for governments and trade organizations to work together to ensure that trade barriers are implemented in ways that are both fair and effective.