Why do countries impose restrictions on international trade?

Answer Details

Countries impose restrictions on international trade (through tariffs, quotas, embargoes, exchange control and outright bans) for several economic and non-economic reasons:

• To protect infant industries: young domestic industries need shelter from established foreign competitors until they grow strong enough to compete.
• To reduce unemployment: restricting imports shifts demand to home-produced goods, raising domestic output and jobs.
• To correct a balance of payments deficit: cutting imports reduces foreign-exchange outflows and improves the external accounts.
• To raise government revenue: import and export duties are an important source of income, especially in developing economies.
• To prevent dumping: to stop foreign firms selling below cost and destroying local producers.
• To improve the terms of trade: a large country can use restrictions to force down import prices in its favour.
• To protect strategic and health interests: to safeguard defence-related industries and to keep out harmful, substandard or dangerous goods.
• To discourage the consumption of harmful or luxury goods and conserve scarce foreign exchange.
• For retaliation: to respond to restrictions imposed by trading partners.

The underlying reasoning is that free trade, though efficient overall, can expose a developing economy to job losses, external deficits and loss of control over strategic sectors, so governments intervene to protect national economic interests.