Trade Barriers – What Businesses Need to Know

Unexpected trade barriers can heavily disrupt supply chains overnight, increase costs and reduce profit margins. For businesses that rely on importing or exporting goods, these restrictions are more than policy changes; they’re operational risks that can affect customer experience and long-term growth.

According to the Trade Barrier Index, “the most restricted markets are home to 42% of the world’s population, but they produce only 9% of global GDP.”

Trade barriers can significantly impact businesses involved in importing or exporting inventory. Understanding these barriers is essential for mitigating risks and maintaining competitiveness.

Trade barriers are generally a government-imposed restraint on the flow of international goods or services. Trade barriers can disrupt supply chains and increase costs. Understanding them is key to reducing risk and staying competitive.

Tariff Barriers

A tariff barrier is a tax on imported goods or services, imposed by the government, making them less competitive with goods produced locally, more expensive to domestic consumers and protects domestic industries. 

A common duty or tariff is the ad valorem, a tax assessed on merchandise value. In most countries, ad valorem taxes are applied to the value of the merchandise, plus the cost of insurance and freight. Tariffs are a legitimate barrier to trade under the global trading regime set up under the World Trade Organization (WTO). 

Examples of Tariff Barriers:

• Ad Valorem Tariffs – Tax based on the value of goods, including insurance and freight.
• Specific Duties – Charges based on weight, volume, or unit (e.g., $0.15 per square yard of fabric).
• Compounding Duties – Combination of ad valorem and specific duties.
• Alternative Duties – Customs apply whichever is higher between ad valorem and specific duty.
• Anti-Dumping Duties – Imposed to prevent foreign companies from selling goods below market value.

Non-Tariff Barriers

A Non-Tariff Barrier (NTB) is often a non-quantifiable measure that restricts or impedes international trade. NTBs rely on regulation, policies or administrative procedures to protect domestic trade and reduce imports. NTBs are regulated by international organisations, such as the WTO. 

Non-tariff barriers are generally not measurable and, as a result, are often hidden costs. Typically referred to as “red tape”, they include quotas, boycotts, licences, standards and regulations, local content requirements, restrictions on foreign investment, local government purchasing policies, exchange measures and subsidies. Governments in some countries pursue a policy of subsidising certain critical industries, whether for political or economic reasons. 

Examples of Non-Tariff Barriers:

• Import Quotas – Limits on the quantity of goods that can be imported.
• Licensing Requirements – Mandatory permits for importing certain products.
• Subsidies – Government payments to domestic producers, creating unfair competition.
• Local Content Requirements – Mandates that a portion of a product must be locally sourced.
• Standards and Regulations – Strict compliance rules for imported goods.
• Voluntary Export Restraints (VERs) – Agreements where exporters limit shipments to avoid harsher restrictions.

What Are Three Formal Trade Barriers?

Tariffs

Tariffs are the most common trade barriers. Imposed by the government, tariffs are taxes on goods entering a country to protect domestic trade. According to the World Trade Organization, 170 countries and customs territories impose tariffs and non-tariff measures. Tariffs are set by the country’s trade policy and product category, leading to wide variation. 

For businesses that rely on imported materials or products, this can lead to higher procurement costs. However, domestic producers could benefit from tariffs as they reduce competition from overseas suppliers. 

Recent trade tensions between the EU and China have led to stricter standards on electronics imports. The EU imposed tariffs on Chinese electric vehicles (EVs), up to 45%.

Import Quotas 

Import quotas, set by governments, limit the quantity of a specific item imported during a set period to restrict supply. This can create scarcity, increasing prices and potentially disrupting supply chains. 

Businesses that depend on imported goods could face challenges when meeting customer demand, as import quotas could be imposed unexpectedly. Quotas are often used to protect sectors – including agriculture or manufacturing – from foreign competition, leading to a significant influence on global trade dynamics. 

Voluntary Export Restraints (VERs) 

Voluntary Export Restraints negotiated agreements - compared to tariffs and import quotas, which are unilateral restrictions. In a VER, the exporting country agrees to a limit on the quantity of goods shipped to a specific market to avoid harsher trade measures. The agreements can ease diplomatic tension but can increase prices for importing goods. 

Because of the unique nature of VERs, businesses should closely monitor these agreements, as they can affect long-term sourcing strategies and inventory planning. VERs are often used in industries where trade disputes are common, such as automotive or textiles. 

It can be difficult to predict changes to trade policy; trade talks tend to occur behind closed doors, and media reports are often limited. To mitigate risks:

• Build contingency into supply chains.
• Avoid reliance on a single overseas supplier.
• Use inventory management software for visibility on changing costs and supply risks.

Build contingency into supply chains.

Building contingency into your supply chain creates flexibility and backup options in case an unexpected disruption arises. Trade barriers or regulatory changes affect non-domestic goods and services, leaving businesses vulnerable to stockouts, increased costs and decreased customer experience. 

Including domestic and international suppliers and maintaining safety stock reduces dependency on a single source, ensuring businesses maintain service levels and customer satisfaction. 

Avoid reliance on a single overseas supplier.

Relying on a single overseas supplier can expose your supply chain to significant risk. If your international supplier faces trade restrictions, logistical delays or compliance issues, your operations could be affected. To reduce risks, develop relationships with multiple suppliers in different countries, leverage negotiations and maintain competitive pricing. 

Use Inventory Management Software for Visibility on Changing Costs and Supply Risks

Inventory management software, such as Unleashed, provides real-time visibility for stock levels and supplier performance. When trade barriers impact import prices or extend lead times, accurate data ensures businesses can make informed decisions quickly. 

Unleashed’s inventory management software automates your manual processes. Features like automated reordering and demand forecasting help you adapt to changing conditions without affecting your supply chain. 

Give Unleashed’s inventory management software a try for 14 days.