Question

What is the long-term effect of tariffs or other trade barriers?

Answer 1

No growth in the economy for example a developing and developed country both have set up barriers against each other now for the developing country trade was to export consumer goods and import capital goods...hence by imposing trade barriers capital goods cannot be imported or imported in less quantity which means no growth or less growth...

Answer 2

Tariffs are a form of protectionism in which levies are placed on imported goods. Countries resort to such tactics to protect the prices of locally produced goods that compete with foreign imports. However, the exporting country often reacts to such to such measures by implementing their own trade barriers.

Consider a recent example from the news; the EU has sought to add a tariff on solar panels manufactured in China. EU member states claim that the Chinese government has been enabling its producers to sell solar panels at below market costs (i.e. the companies would be losing money without help from the Chinese government). These imported solar panels have stolen a large market share from companies within the EU who are forced to compete under normal market conditions (i.e. for profit). When the EU announced its trade tariffs against Chinese solar panels (led by the French government) the Chinese reacted in kind - they threatened to place tariffs on Wine (a major French export).

This example highlights the dilema developed countries now face - on the one hand they wish to exploit emerging markets to sell their goods (e.g. German cars etc.), on the other hand developing countries are now beginning to compete directly with their European and North American counterparts. Should governments seek to protect their home produced goods and risk losing access to fast growing export markets? Or should they adopt a free trade policy and risk countries such as Brazil, India, and China out competing their organizations?