Question

Why do governments use trade barriers? Explain.

Answer 1

Trade barriers are basically limitations imposed by government on the trade imports of the country or on the foreign companies trying to sell products in a country.

The major reason behind these barriers is the protectionism of the local producers , retailers and industries.

When foreign companies start dealing in a country, since they are usually more developed with better infrastructure and technology ,they are able to offer better quality products and services at a cheaper price in more variety which puts local producers or industries in a natural disadvantage. The local industry fails to compete with those foreign companies and then the result is the local industry fails to grow or even survive.

So ,government understand the need to provide a shelter to the local producers or industries to provide them a fair chance to grow and improve their offerings. Trade barriers like import tarrifs etc make the product more expensive which also levels the playing field. Trade barriers protect local industries and Gross Domestuc Product in a nutshell.