In today’s global economy, international trade plays a crucial role in the growth and development of businesses worldwide.
Tariff barriers refer to taxes or duties imposed on imported goods, while non-tariff barriers encompass various restrictions, regulations, or barriers other than taxes that hinder international trade.
Tariff and Non-Tariff Barriers
|Tariff Barriers||Non-tariff Barriers|
|Tariff barriers are taxes or duties imposed on imported goods.||Non-tariff barriers encompass a wide range of restrictions, regulations, or barriers other than taxes that hinder international trade.|
|Examples of tariff barriers include import duties and customs fees.||Non-tariff barriers include measures such as quotas, embargoes, and licensing requirements.|
|They are primarily implemented to generate revenue for the government.||They are often used to protect domestic industries and maintain trade balance.|
|Tariff barriers directly increase the cost of imported goods.||Non-tariff barriers result in indirect costs such as compliance with regulations or obtaining certifications.|
|They are generally easily measurable and predictable.||They can be more complex and variable in terms of regulations and their impact.|
|Tariff barriers may reduce imports and protect domestic industries.||Non-tariff barriers can restrict trade in various ways, potentially affecting market access and competitiveness.|
|They can be subject to negotiation in trade agreements.||They are often more challenging to negotiate due to their complexity and diverse nature.|
Definition of tariff and non-tariff barriers
A tariff is a tax placed on imported goods in order to make them more expensive than similar domestically produced goods.
The purpose of a tariff is to protect domestic industries from foreign competition by making it more expensive for consumers to purchase imported goods.
Non-tariff barriers (NTBs) are trade restrictions that are not in the form of tariffs. NTBs take many different forms, such as quotas, embargoes, licensing requirements, and standards.
The purpose of NTBs is also to protect domestic industries from foreign competition, but they do so by making it more difficult or costly to import goods rather than by increasing the price of imported goods.
Similarities between tariff and non-tariff barriers
- Impact on Trade: Both tariff and non-tariff barriers can hinder international trade by creating obstacles or limitations for the movement of goods and services across borders.
- Protectionist Measures: Tariff and non-tariff barriers are often employed as protectionist measures to shield domestic industries from foreign competition and maintain a favorable trade balance.
- Government Control: Both types of barriers involve government intervention and control in regulating international trade, either through imposing taxes and duties (tariffs) or implementing various regulations and restrictions (non-tariff barriers).
- Policy Tools: Tariff and non-tariff barriers serve as policy tools for governments to influence and shape their economies, protect key industries, and address trade imbalances.
- Trade Negotiations: Both tariff and non-tariff barriers can be addressed and negotiated in trade agreements between countries, with the aim of reducing or eliminating barriers to promote freer trade.
Examples of tariffs
- Ad valorem tariffs: These are taxes levied as a percentage of the value of the imported good.
- Compound tariffs: These are taxes that combine both a specific and an ad valorem tariff.
- Revenue tariffs: These are taxes that are designed to generate revenue for the government, rather than protect domestic industries.
Examples of non-tariffs
- Quotas: limits on the amount of a product that can be imported
- Licensing requirements: import licenses or other permits that must be obtained before importing a product
- Standards and technical regulations: requirements that products must meet in order to be imported (e.g. safety standards)
- Anti-dumping measures: tariffs imposed on products that are sold at below-market value
- Subsidies and other forms of government support for domestic industries can make imported products less competitive
Impact of tariffs on trade
When tariffs are imposed, the price of imported goods increases, making them less competitive with domestic products. This can lead to a decrease in demand for imported goods and an overall decrease in trade.
Tariffs can also have an indirect impact on trade by affecting the production of goods that use imported inputs.
For example, if tariffs make imported steel more expensive, then the production costs of companies that use steel in their products will increase. This could make those products less competitive in global markets, and lead to a decrease in exports.
Impact of non-tariffs on trade
NTBs can take the form of import quotas, export quotas, licensing requirements, investment restrictions, or rules and regulations that make it difficult to trade internationally.
NTBs often have a greater impact on trade than tariffs because they can raise the cost of doing business by making it more difficult to source inputs or find customers for exports. They also create uncertainty for businesses by adding red tape and making it harder to predict the costs of doing business in foreign markets.
Key differences between tariff and non-tariff barriers
First, tariffs are typically applied to imported goods, while non-tariff barriers can apply to both imports and exports.
Second, tariffs are typically based on the value or volume of the goods being traded, while non-tariff barriers may be based on other factors such as environmental regulations or health and safety standards.
Tariffs are typically imposed by the country of import, while non-tariff barriers may be imposed by either the importing or exporting country.
- Difference between functional and divisional structures
- Difference between invention and innovation
- Difference between industries and markets
Tariffs and non-tariff barriers are two important trade instruments used by countries to protect their local industries. While tariffs involve levying taxes on imported goods, non-tariff barriers take the form of regulations or other restrictions that can make it difficult for foreign companies to do business in a particular country.