Barriers to Trade (Junior Cert Business Studies): Revision Notes
Barriers to Trade
Countries often want to protect their domestic industries and control what goods enter their markets. To achieve this, governments use various barriers to trade - obstacles that make it harder or more expensive for foreign goods to compete with local products.
There are four main types of barriers that countries use to restrict international trade:
- Tariffs
- Quotas
- Embargoes
- Subsidies
As a member of the European Union, Ireland cannot impose trade restrictions on other EU countries. However, Ireland still encounters these barriers when trading with countries outside the EU.
Tariffs
A tariff is a tax placed on imported goods to make them more expensive than domestic products.
When governments want to protect their local industries from foreign competition, they often use tariffs. By adding extra costs to imported goods, tariffs encourage consumers to choose domestically-produced alternatives instead.
The main purpose of tariffs is to:
- Protect domestic jobs and businesses
- Make local products more competitive on price
- Generate revenue for the government
Trade Barrier Example: EU Steel Tariffs
The European Union has imposed tariffs on certain steel imports from China. This makes Chinese steel more expensive for European buyers, helping to protect European steel companies and their workers from losing market share.
Quotas
A quota is a restriction that limits the quantity of specific goods that can be imported into a country.
Unlike tariffs, which work through pricing, quotas directly control how much of a product can enter a country. Once the quota limit is reached, no more of that product can be imported until the next time period begins.
Quotas help governments:
- Control the supply of foreign goods in their market
- Ensure domestic producers have a guaranteed market share
- Protect strategic industries
Trade Barrier Example: EU Steel Quotas
All steel imports into the EU have been subject to quotas. This means that even if foreign steel companies want to sell more to European customers, they cannot exceed the predetermined limits set by EU authorities.
Embargoes
An embargo is a complete ban on importing or exporting specific goods, often for political or health reasons.
Embargoes represent the most extreme form of trade barrier. They completely stop the trade of certain products, usually due to serious concerns about safety, politics, or international relations.
Common reasons for embargoes include:
- Health and safety concerns (such as disease outbreaks)
- Political disagreements between countries
- International sanctions
Trade Barrier Example: BSE Beef Embargo Impact on Ireland
Following the outbreak of BSE (mad cow disease) in the 1990s, many countries placed an embargo on European beef exports. For Ireland, this was particularly significant as beef is a major export.
When the embargo on Irish beef exports to countries like the US and China was lifted in 2015, it provided a huge boost to Irish farmers and the broader economy.
Subsidies
A subsidy is financial support that governments provide to domestic businesses to help them compete against foreign companies.
Rather than making foreign goods more expensive, subsidies work by making domestic goods cheaper or helping domestic companies reduce their costs. This gives local businesses an advantage over international competitors.
Subsidies can take various forms:
- Direct cash payments to companies
- Tax breaks and reductions
- Low-interest government loans
- Support for research and development
Trade Barrier Example: Irish Public Transport Subsidies
The Irish government provides subsidies to CIÉ (Córas Iompair Éireann), which operates public transport services including Bus Éireann and Irish Rail. These subsidies help keep the company operating even when it faces losses, ensuring that essential transport services continue to serve Irish communities.
Key Points to Remember:
- Tariffs add extra costs to imported goods through taxation
- Quotas limit the quantity of goods that can be imported
- Embargoes completely ban the trade of specific products
- Subsidies provide government support to help domestic businesses compete
- Ireland cannot use these barriers against other EU countries but may encounter them when trading globally