Instruments of trade protection
Tariffs
Tariffs are taxes imposed on products imported to a country from abroad. Tariffs generate income for the government, that’s why they used to be the most popular form of trade protection. Tariffs can be specific or ad valorem. If a fixed amount of tax is imposed on each unit of the imported good we talk about a specific tariff. Ad valorem refers to the value of the product, a fixed percentage of the value of the product must be paid when imported. Tariffs are less and less commonly used thanks to the negotiations of the GATT and the WTO.
Quotas
Quotas are similar to tariffs in the sense that they limit importation, only a fixed amount of goods can be imported to a country from abroad during a certain period of time. Just like tariffs, quotas aim to increase prices in the home country and this way support the local producers. Unlike tariffs, quotas do not generate revenue for the government. Thus those foreign producers who receive an import licence benefit from the tariff.
Subsidies
Another way to support domestic producers in the competition with foreigners is by giving subsidies. The Common Agricultural Policy of the European Union uses subsidies to encourage domestic farmers to produce and help them compete against the cheaper foreign agricultural products. While tariffs generate revenue for the government, subsidies are a cost for the government.
Nontariff barriers
Nontariff barriers include health and safety requirements, anti-dumping measures, administrative procedures and custom entry requirements. Essentially they restrict the importation of foreign goods to a country, but they are more difficult to measure than tariffs, and thus more difficult to negotiate at the WTO.
Coughlin, Chrystal, and Wood. “Protectionist Trade Policies: A Survey of Theory, Evidence, and Rationale.” in Frieden, Jeffry A., and David A. Lake. International Political Economy: Perspectives on Global Power and Wealth. 4th ed. Boston: Bedford/St. Martin’s, 2000
Grieco, Joseph M., and G. John Ikenberry. State Power and World Markets: The International Political Economy. New York: W.W. Norton & Co., 2003.
