Trade restrictions are any of a number of policies that a government may use to manipulate the import and export of goods across its borders. The justifications for this manipulation--and the means of achieving that goal--are numerous, and economists refer to them as "governmental commercial policy." These policies may range anywhere from subsidies on domestic goods to taxes on foreign goods, and their aim is to eliminate foreign comparative advantage and to protect and support domestic producers.
Governments have many reasons to manipulate trade across their borders, but protecting and supporting domestic producers and jobs is the basis for most of these justifications. The government may want to restrict trade in order to create domestic jobs in a specific industry, to give domestic producers a more "fair" advantage compared to foreign producers, or to provide emerging industries the protection to flourish and become competitive on the world market. Additionally, as is the case in many developing nations that rely heavily on imports, governments may use import taxes to generate a steady revenue stream. Industries vital to national defense also commonly receive benefits from trade restrictions; state governments wish to protect those industries from foreign competition, in order to ensure that they will continue to exist in a time of war. Governments may also enact health and safety standards to keep out potentially harmful foreign goods.
A state government may enact trade restrictions in one of five ways.
Import Tariffs:
A tax on imports from foreign countries that make the goods from those countries more expensive in domestic markets.
Import Quotas:
Restrictions on the quantity or monetary value of a good that may be imported from a foreign country.
Export Subsidies:
A government provides a means--through direct cash transfers, tax incentives, or funding--to make domestic goods cheaper to foreign countries.
Government Procurement:
Governments buy all remaining goods left within a market, in order that they will not be exported to foreign countries.
Health and Safety Standards:
Health or safety standards may keep foreign goods from entering a country.
Trade restrictions tend to benefit local producers and hurt domestic consumers in the short-run. While restrictions on trade may help protect domestic jobs and producers, consumers, typically, must buy more expensive domestic goods over the would-be cheaper foreign goods, leaving the consumer with less disposable income to spend on other goods. Additionally, trade restrictions may hurt foreign producers, as is the case when a government enacts export subsidies. In this case, although the domestic good is produced at a higher cost than the foreign good, the government subsidy allows the domestic good to sell for a cheaper price on the world market than the foreign good, which eliminates any comparative advantage the foreign producers may have.