The Arsenal of Trade Weaponry

The Arsenal of Trade Weaponry

Trade policy instruments are designed with one thing in mind: protectionism. Most are unambiguously pro-domestic producer and anti-consumer. Domestic producers mainly gain due to greater protection from foreign competition, whereas consumers lose by facing higher prices and lower product variety.

Governments intervene in international trade for political and economic reasons. Choices are abundant when selecting from the “arsenal” of trade weapons, including tariffs, subsidies, import quotas, voluntary export restraints (VERs), local content requirements (LCRs), administrative policies, and antidumping duties. Nations usually adopt trade regulations to achieve stated national objectives, but these regulations may have undesirable effects on many sectors of the economy, including higher prices for consumers, overproduction of agricultural products, and the insulation of nonefficient producers.