Trade restrictions are policies implemented by the government that act as blockades or trade barriers. Such policies include tariffs, import quotas, and exchange rate controls. They greatly reduce the volume of trade, which negatively impacts economies. So why would governments ever want to erect such trade barriers? There are three proposed arguments offered as explanation.
First is the national defense theory. According to this argument, certain industries such as weapons, aircraft, and petroleum are vital to a nation’s defense. Therefore, proponents of this theory argue that these domestic industries should be protected from foreign competitors so that there is a domestic supply on hand in case of an international conflict. A country certainly would not want to be dependent on foreign countries for weapons and artillery in such a situation.
Second is the infant industry theory. Under this argument, it is believed that new domestic industries should be protected from foreign competition for so long so that they will have a chance to develop. Ideally, as the new industry matures and becomes able to stand on its own feet and compete effectively with other producers, the protections will be removed. It is intended to help a new domestic industry develop without being immediately crushed by already established foreign industries.
Last is the antidumping theory. Dumping is simply the selling of a good in a foreign country at a lower price than it is sold for in the domestic market. It is an illegal practice and current laws provide relief in the form of tariffs imposed against the violators. Proponents of this argument believe that if dumping is allowed, foreign producers will temporarily cut prices and drive domestic firms out of the market. Then they will use their monopoly to exploit consumers. Antidumping legislation is implemented to prevent this.
There are three primary reasons as to why a country’s government would impose trade barriers. According to the national defense, infant industry, and antidumping theories, there are valid reasons that a government would choose to do so. Regardless of which reason, nations do adopt trade restrictions for different purposes. And although trade restrictions can sometimes have negative side effects, that is not to say that they are never useful. As all of these three arguments imply, there are sometimes cases in which trade restrictions may be warranted. However, all economic effects must be considered as well, both primary and secondary effects. Whatever course of action promotes economic growth and prosperity in the end is the one that should be taken.