Trade Restrictions

Business studies study module

These are deliberate measures by the government to limit the imports and exports of a country. They are also known as protectionism and includes the following;

  • Tariffs which include taxes levied on both import and export. It can be used to increase or decrease the level of both import and export
  • Quotas which is the restriction on the quantity of goods to be either imported or exported. It can be increased or decreased to increase or decrease the level of import or export respectively.
  • Total ban (zero quota) where the government issues a direction illegalizing either the import or export of the products
  • Complicated import procedure in order to discourage some importers from importing
  • Subsidies on locally produced goods to discourage imports
  • Legislation against importation of certain goods
  • Setting the standards of products to be imported

Reasons for trade restrictions

  • To prevent the inflow of harmful goods into the country, that may be harmful to the lives of the citizens
  • To protect the local infant industries that may not be able to compete favourably with well established industry
  • To give a country a chance to exploit its natural resources in producing their goods
  • To protect strategic industry, since their collapse may make the country to suffer
  • To minimize dependency of the country to other countries for their stability
  • To create employment opportunity to its people by establishing the industries to produce the goods and services
  • To prevent dumping of goods in the country by the developed partners which may create unfair competition
  • To correct balance of payment deficit by limiting import
  • To protect good cultural and social values which may be influenced by unaccepted values they are likely to acquire from other country through interaction
  • To expand market for locally produced goods by restricting the number of foreign goods in the market.
  • To enable the country earn foreign exchange through imposing taxes and other tariffs

Advantages of trade restrictions

  • It promotes self reliance as industries have an opportunity to engage in the production of goods and services that were previously imported
  • It protects the local industries from stiff competition that they may have faced from the well developed countries
  • It may help to correct the balance of payment deficit
  • It restrict the entry of harmful goods into the country as it controls the inflow of imports in to the country
  • It enables the country to conserve their valuable social and cultural values from the external influence
  • It help in creating more job opportunities through diversification in the production
  • It promotes the growth of local/infant industries in the country.

Disadvantages of trade restriction

  • There will be availability of limited variety of goods in the country that will limit the consumer’s choices
  • May lead to production of low quality goods as there will be no competition for the producing firms
  • Other countries may also retaliate, leading to reduction in export from their country
  • There is likely to be high prices charged on the locally produced goods, since the small firms which produce them may not be enjoying the economies of scale
  • The country is likely to be exposed to small market, should all countries restrict which may lead to reduction in trade.
  • As a result of the continued protection, some industries may develop a tendency of remaining young to still enjoy the protection, which limits the level of development
  • It may lead to emergence of monopoly as the protected industry may end up remaining alone in the market, bringing about the problems of monopolies

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