Different forms/Tools /Instruments of Protectionism (Trade barriers)
- Tariffs. A tariff refers to the tax imposed on imports (import tariff) or exports (exports tariff) of the country. If the country wants to reduce imports, it increases import tariff (duties) and if the country wants to encourage exports, it reduces the export duties.
Tariffs can either be Advalorem or specific.
Advalorem tax. This refers to the tax imposed on commodities basing on their monetary value. For example 30% of the value of the imported commodity as a tax
Specific tax. This is the tax imposed on commodities basing on their quantities or units imported for example a tax of 500/= imposed on each unit of the commodity imported.
- Quotas. These are physical or quantitative restrictions on the amount of a commodity imported into or exported from the country in a given time. Import quotas restrict the amount of imports to the country and export quotas are restricts the amount of exports.
- Foreign exchange control. This is where the government restricts the supply of foreign exchange for import purposes. For example it can allocate foreign exchange at lower rates to importers of essential commodities and at high rates to importers of non-essential and luxurious commodities so as to reduce on their importation.
- Trade embargoes (sanctions). This is where the government prohibits the importation of commodities from certain countries and exportation of commodities to certain countries in form of economic sanctions. Such sanctions are aimed at promoting peace, harmony and human rights. For example the economic sanctions imposed on Iraq and Zimbabwe by U.S.A.
- Deflationary policy. This is where the government through the central bank: uses the restrictive fiscal and monetary policies in order to reduce on the amount, of money circulating in the economy so as to check on the aggregate demand for imports. This can help to reduce on the quantity of imports to the country.
- Total ban (Complete ban). This is where the government completely prohibits the importation of a certain commodity from a given country. This is done when the commodity is either harmful, when there is political crisis between the two countries or when the commodity is security risk to the country.
- Administrative controls (restrictions). This is where the government sets bureaucratic formalities or procedures which the importers or exporters have to follow in the process of international trade. These procedures tend to be lengthy and costly such that it becomes uneconomical to import or export certain products hence controlling international trade.
- Subsidization. This is where the government gives assistance to the producers of certain products. Such economic assistance can be in form of soft loans and subsidized inputs particularly to the domestic producers of essential products. This lowers the production costs and enables the home producers to sell their commodities at fair prices in order to compete favorably with the imported products.
- Import licenses. The government can restrict licenses given to importers and exporters of certain commodities hence controlling international trade.
- Devaluation. This refers to the deliberate government policy of reducing the value of domestic currency in terms of other currencies. Devaluation discourages imports and encourages exports. This is because it makes exports cheap to the foreigners and imports expensive to the locals. However, this policy can be effective if imports and exports have elastic demand.
- Transport discrimination. This is where the government discriminates against imports in form of high transport charges while the locally produced goods are transported at low changes. This discourages the imports into the country.
- State trading. This is where the government takes over the importation of certain commodities from private individuals. In this case the government restricts the amount to be imported hence controlling international trade.
- Special import deposits. This is where the government requires the importers of certain commodities to first deposit a given amount of money with the central bank before being licensed to import. This reduces on the number of importers hence discouraging imports in the country.
- Quality control standard agencies such as UNBS and National drug authority are used to prevent inferior products from entering the country.
CATEGORIES Economics
TAGS Dr. Bbosa Science