Barriers to Trade

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Barriers to Trade

Barriers to trade include those made by policy and those posed by nature. Both policy barriers and natural barriers include several important types. Overall, despite much talk of globalization, barriers to trade of both types remain high (see Anderson and van Wincoop 2004 for a review of evidence).

POLICY BARRIERS

Policy barriers include tariffs and quotas. In past years and still in many countries, these have been substantial barriers to international trade. Tariffs and quotas discriminate in the treatment of goods between those produced at home and those produced abroad. Other policy barriers can also be discriminatory.

Product standards, such as health and safety requirements, are on the surface nondiscriminatory. All autos sold in the United States must meet emissions standards. Under the surface, however, product standards are often used to discriminate. It is very difficult to make systematic evaluations of the effect of discrimination in product standards. Anecdotes abound, as in the notorious exclusion of Mexican trucking firms via discriminatory use of safety standards from the North American trade they are entitled to under the North American Free Trade Agreement.

The legal system’s treatment of aliens is often different than that of nationals, even though the laws themselves are mostly formally nondiscriminatory. Fair treatment of aliens is to some degree a policy choice. Again, anecdotes abound, but systematic evaluation of the effective policy discrimination is very difficult. Statistical inference that relates the pattern of bilateral trade to economic variables and to the quality of institutions (as measured by surveys of businessmen) suggests that bad-quality institutions harm international trade. For example, Anderson and van Wincoop (2004) report that Latin America’s institutional deficit relative to European norms reduces its imports by as much as Latin America’s tariffs.

NATURAL BARRIERS

Nature too imposes barriers to international trade. Most obviously, trade requires shipping, which increases in cost with distance. Distance reduces international trade relative to domestic trade because markets within nations are closer together on average than markets between nations. Transportation costs between most international markets are larger, usually much larger, than tariffs or tariff equivalents of quotas. Distance may also be associated with higher nontransportation trade costs, as it appears to reduce trade by more than can be accounted for by transportation.

Asymmetric information is another natural barrier to trade. Businessmen tend to know more about local markets than foreign markets. Information can be discovered at a cost, and this constitutes another trade cost. Statistical inference suggests that information costs can be large. Language differences, cultural differences, and institutional differences all reduce trade while ethnic ties increase it.

Attempts to infer the size of border barriers of all types give some idea of the size of barriers to trade. Inference can be done by comparing trade between regions of a single country with trade between regions in different countries, controlling for other influences, such as distance, on the size of trade. The average trade reduction associated with crossing a border implies very substantial border barriers that are a large multiple of tariffs and the tariff equivalents of quotas (see Anderson and van Wincoop 2004 for detailed discussion).

SEE ALSO Liberalization, Trade; North American Free Trade Agreement; Quotas; Quotas, Trade; Tariffs; Trade; Trade, Bilateral