Trade restriction is an artificial restriction on the goods and services between two or more countries. The country may use trade barriers such as placing tariffs on imported goods, raising the prices of imported goods so that they may not be competitive.
The major barriers to international trade are such as natural barriers such as distance and language, tariff barriers such as imposing a high tax on imported goods, non-tariff barriers such as quotas and exchange controls.
Pros of Trade Restrictions
- A better balance of trade
When there is a restriction, the goods that are allowed in the country and the ones imported are controlled hence there will be no dumping of a lot of goods in another country which will cause inflation problems.
- Protection of emerging domestic industries
Trade restrictions make it possible for a country to protect the emergency of domestic industries by only allowing few commodities from other countries hence making the consumers buy their own goods improving the industrial development in the country.
- Increases consumption of local goods
There will be an increase in the consumption of local goods as the imported goods will not be allowed in the country hence making the industry that is producing the goods to grow.
- Create employment
The restrictions will allow industries to develop in a country that will need people to work in them hence a source of employment to people hence improving their living standards.
- National security
Prohibited goods will not easily come into the country as all imported goods will be restricted hence the country will be protected from using the prohibited goods that may affect their health.
- Increases national revenue
The country is able to earn revenue from the goods that are produced in their own country and the money can be used in other areas of the economy hence improve in the economic growth of a country.
Cons of Trade Restrictions
- Lack of choice for consumers
Consumers will not have a variety of goods to choose from as they will only be supplied with the goods that are produced in their own country.
- It affects economic growth
The countries that are involved in international trade may suffer economic growth as they will not be able to sell their goods to other countries hence they will limit the production of the goods.
- Lack of market for surplus goods
There will be no market for surplus goods produced in the countries hence there may be wastage that will make the producing company run at loss.
- Loss of revenue
The countries will not be able to get revenue from trade as they will not be able to export their goods to other countries hence affecting the economic growth of the country.
- Fewer jobs available
There will be the availability of fewer jobs as the middlemen that are involved in the transportation of the goods to the other countries will not have jobs.
- There will be a monopoly
There will be a monopoly of some companies as they will be the only ones producing the commodity hence there will be a possibility of production of low-quality goods.
Trade restrictions inhibit growth and expansion as other countries fully rely on goods from other countries and they may end up having insufficient goods. Most countries prefer international trade as they are able to get goods that they do not produce in their own countries.