Barriers to international trade: ● tariffs ● trade blocs.

The idea

Barriers to international trade are measures designed to restrict the flow of goods between countries, often to protect domestic industries. Tariffs are taxes placed on imported goods, which increase their selling price. This makes imports less competitive, encouraging consumers to buy cheaper domestic alternatives. However, tariffs can increase costs for businesses relying on imported raw materials. Trade blocs, such as the European Union, are groups of countries that agree to reduce or eliminate trade barriers between themselves while maintaining them against non-members. While trade blocs encourage free trade within the group, they act as a barrier to businesses outside the bloc, who must still pay tariffs to export their goods into the member countries.

What earns the marks

• Tariffs increase the cost of imported goods, making them more expensive for consumers and reducing demand for overseas products.
• Domestic businesses benefit from tariffs on competitors' products as their own goods become relatively cheaper and more attractive.
• Businesses that import raw materials suffer from tariffs because their variable costs increase, potentially reducing profit margins.
• Trade blocs eliminate tariffs between member countries, facilitating cheaper and easier international trade within the group.
• Non-member businesses face significant barriers when exporting to a trade bloc, as they are subject to external tariffs and quotas.

Common mistakes and how to put them right

• Defining a tariff as a ban on imports.

  Put it right: A tariff is a tax on imports, whereas a quota is a physical limit and an embargo is a ban.

• Stating that trade blocs completely stop international trade.

  Put it right: Trade blocs promote free trade internally but create barriers for external, non-member countries.

• Assuming tariffs are paid by the exporting country's government.

  Put it right: Tariffs are usually paid by the importing business, which often passes the cost onto the consumer through higher prices.

Exam tips

• When discussing tariffs, explicitly state the impact on both the importing business's costs and the final price paid by the consumer.
• Use the concept of a trade bloc to explain why a business might relocate its factory inside the bloc to avoid external tariffs.
• Always link trade barriers back to the impact on a business's profit margins and its ability to compete on price.