Economic development is the basis for progress of any country. In the modern age international trade has taken a central role in economic development. Trade fuels growth by creating new businesses and employment. This also enables countries from around the globe to access unique services on a cost effective basis. Though it has been a while since global trade opened up, there are still barriers that have stifled the potential growth. These hurdles disrupt supply chains which ultimately leads to the suffering of consumers. Here we will discuss common trade barriers and how to get around them.

Types of Trade Barriers

Tariff Barriers

Tariffs are taxes that the government imposes on goods that are imported. This increases the price of the imported goods. Even though the main objective of tariffs is to protect and develop local industry, they lead to increasing the price of the goods. The simple average tariff across all products was 5.47 in 2022, while the weighted average tariff was 4.14. Moreover, geopolitical tensions come into play with tariffs. 

One stark example of this is the ongoing US China trade war that started back in 2018. The US imposed tariffs on $350 billion worth of goods imported from China. In retaliation, China imposed tariffs on $100 billion worth of goods imported from the US. This blow for blow has led to price increases that only increased the burden on the consumers. Industries reliant on imported Chinese raw material and imports jacked up their price. So the consumer households had to pay around an additional $1,400 annually due to the trade war.

Non-Tariff Barriers

There are different barriers placed other than pecuniary ones such as regulations, quotas and subsidies. These barriers limit the flow of export and import and can increase the price of goods by as much as 20%.

Trade quotas limit the amount of goods one country can export or import to another. This is mainly done to curb the amount of imported goods without imposing extra taxes. Governments can choose to subsidize the local economy, enabling the local producers to offer goods at a lower price. This will result in lower import amount from overseas.

Different countries have set different standards to ensure the quality and safety. So exporters and importers have to follow those rules. This also slows down trade as businesses have to follow extra regulation even though it’s for the greater good. Delays at customs are another barrier to international trade. It is reported that due to having inefficient systems, underdeveloped countries add to the time of delivery of goods. They can add additional 48 hours to a few weeks for custom clearance. Whereas in a developed nation it usually takes a few hours. 

Sanctions and Embargoes

Embargoes are placed on countries to isolate them and weaken their economy. The most recent discussed sanction was imposed on Russia back in 2022 due to the invasion of Ukraine. By 2023 EU exports to Russia fell by 57% whereas the imports from Russia fell by 69%. Now most countries can’t trade freely with Russia which has disrupted the supply chain. This caused the basic commodities such as wheat to go up which in turn increased the food price among other things.

Strategies to Tackle Trade Barriers

Free Trade Agreements (FTAs)

FTAs bind countries in economic agreements that are beneficial for all parties involved. These agreements eliminate tariffs on exports and imports, creating a more robust industrial base. So goods from the countries involved get preferential treatment. One of the most notable FTA is NAFTA which later became USMCA.

Between 1993 and 2006 trade between the US, Mexico and Canada tripled. The amount of trade went from $290 billion to $1.1 trillion. Canada increased its export to NAFTA countries by 173%. At the same time US exports to other parties grew up 157%. Mexico saw tremendous growth as its exports to the US increased by 392%.

Homogenous Standards

Countries can come together to form rules and regulations that will be standard for each of those countries to make trade between them more simplified. This reduces cost and burden of compliance on both the exporter and importer’s end. A stark example of this is the EU. In the EU there is a common currency Euro so there is hassle in currency exchange. Besides, members of the union can do business with one another without facing the usual hurdles.

Improve Customs Procedure

Better customs procedures can reduce time at the port. As a result, the exporters will be able to deliver goods on time and the importers will receive on time. Adopting modern technologies such as automation and digitalization of customs can make the process a lot faster.

A fine example of this aspect is Singapore’s TradeNet system. The system connects the customs with the trade and regulatory bodies to make the documents processing faster. It usually took 2 to 7 days for customs to clear the goods but with TradeNet it now only takes 10 minutes on average.

Building Capacity for Developing Nations

Underdeveloped and developing nations face many challenges when it comes to international trade. They have to follow the regulations set by international bodies while also working towards having an efficient system. So international communities have taken steps to lend monetary help to build infrastructure for these developing economies. Between 2006 and 2022, WTO’s Aid for Trade initiative has supported many developing nations by providing nearly $647.4 billion to develop infrastructure to increase the efficiency of trading.

Trade barriers are big obstacles to the global economy. By reducing these barriers, new potential for growth can be unlocked. With the help of trade agreements, better implementation of systems and infrastructure, these hurdles can be reduced. This will create more jobs and result in more productivity and promote innovation. 

International trade has become the centerpiece of the global economy. Exchanges of goods and services along with monetary transfers take place in international trade. Governments come up with rules to profit from lucrative trades. That’s where trade tariffs come in. These tariffs are imposed on exports and imports of goods and services. Imposing tariffs highly influences the trade system. Generally governments impose trade tariffs to stimulate their domestic growth by reducing imports. But this does have a rippling effect from producers to consumers and also on geopolitics. Here we will discuss the impact of tariffs on international trade.

Tariffs and Their Purposes

Tariffs are taxes imposed on importers and exporters to achieve significant gains from the international trade for government spendings. There are a few key reasons for tariffs. Some of the reasons are:

• Priority to Domestic Industry: One of the most important aspects of tariffs is to stimulate domestic production and growth. Usually the government imposes a high amount of tax on foreign imported goods. This makes the cost of the imported goods in the domestic market significant. As a result, domestic producers can compete better by offering products cheaper than the imports. This protects the domestic producers.
• Revenue Source: Underdeveloped and developed economies earn a substantial amount of government earnings from tariffs. These economies usually impose high tariffs on trades.
• Trade Balance: Imposing tariffs can lead to less import of foreign goods. As a result a country has to spend less on importing goods and services. This greatly helps in reducing trade deficits.

Impact of Tariffs on Economy

Higher Cost for Consumers and Businesses

The first effect of tariffs is higher prices for products. Even though the tariffs are imposed on businesses, consumers have to bear the brunt of its effect. Businesses will charge more to make up the extra cost added by tariffs. Moreover the increase in tariff rates affects not just a single industry but multiple industries at the same time. 

In 2018, the US imposed a 25% tariff on imported steel. This had a broader influence on the industry in general. Those industries that required steel, their cost of operation went high by a good margin. Automotive and construction are among the industries which had a rise in cost of production due to increased price of steel. Estimates from one study of the Peterson Institute for International Economics note that an 8 percent price increase occurred to domestic steel owing to an imposed tariff, which affected mainly small- and medium-scale companies rather than large firms.

A study by the National Bureau of Economic Research in 2018 estimated that, due to the trade war between China and the US, consumers had to pay an additional $419 per month for goods. So, it goes without saying that the sufferers of extra tariffs by governments are the consumers.

Global Supply Chain Disruption

Globalization has brought countries closer and interconnected businesses and economies. Global supply chain has been established keeping efficiency in mind. This has made doing business overseas easy and cost effective. But higher tariffs mean businesses have to up their cost. This results in businesses looking into alternative sources for products and services.

Following the trade war, the US, in 2018, cut trade with China by 10 percent. According to the Bureau of Industry and Security, the US exports reached $106.6 billion worth of goods, a decline of 11.3% compared with the previous year. In the same period, China also exported $452.2 billion worth of goods to the US, down 16.2 percent from the former year.

As countries moved away from China, large businesses started shifting their manufacturing to other countries like Vietnam and Thailand. In 2019, the United States International Trade Commission reported a 35.6% growth in imports from Vietnam, reaching as high as $66.7 billion compared with the previous year.

Retaliation and Trade War

Imposing tariffs not only just impacts the businesses but also affects the country’s economic growth. This leads to retaliation to preserve the economic balance. A great example of it is the US and China trade war since the first Trump administration.

According to Moody’s Analytics the trade war resulted in a loss between 0.3% to 0.7% for the US. The most recent study by the Federal Reserve Bank of New York and Columbia University found that the trade war caused $1.7 trillion loss in stocks for the US market.

The edge of tariffs, regarding international trade, is dual. Whereas on one side, they generate government revenue and protect domestic industries, on the other side, this may lead to supply chain disruption, trade wars, and slow economic growth. Another downside of tariffs is that they increases the load on the consumers. Policymakers should implement tariffs that are beneficial to the economy as a whole.

The rapid expansion of global trade has led to complexities in trading between nations. Standards were set for making the communication between countries smoother, keeping standardization in mind. So, for efficient trading, standards were set to make the communication between countries smoother. In 1936 the International Chamber of Commerce introduced Incoterms. Since then Incoterms have become a core in international trade. They provide a standard framework for buyers and sellers. They define the cost, risk, and responsibility of carriage of goods. Here we take a detailed look at Incoterms and their importance in international trade. 

What are Incoterms?

Incoterms are commercial terms published by the International Chamber of Commerce. These terms are related to international commercial law. Incoterms denote the responsibilities of importers and exporters. They highlight the liabilities during the various stages of transfer of goods. Incoterms work as the medium for International commercial transactions. The primary task of Incoterms is to communicate clearly with buyers and sellers. That is why they are mostly three letter trade terms. Some of the key points Incoterms focus on are:

• Delivery Point: It is the point where responsibilities get transferred to the buyers from the sellers.
• Risk Transfer: This discusses the shift of responsibilities of potential damages from the sellers to the buyers.
• Cost Allocation: This defines who will take care of the cost of transportation, insurance and customs clearance.

Some terms used for any mode of transportation are: EXW, FCA and CIP.

Some terms used for transportation in water ways either by sea or inland water bodies are: FAS, CFR and FOB.

Importance of Incoterms

Borderless Standardization

In 2024 global trade has reached a record breaking $33 trillion which is a huge jump from last year. This unprecedented feat is possible due to implementation of standards worldwide for international trade. Incoterms work as a universal language when it comes to cross border trading. So parties from different parts of the world know about their responsibilities. Consequently this facilitates a smoother transaction by reducing errors in trading.

Reduction in Trade Disputes

ICC has revealed that almost 30% of trade disputes occur because of unclear contract language. It’s natural that importers and exports won’t deal in contracts that are ambiguous in nature. Incoterms aim to reduce these miscommunication by setting up a standard to follow. This results in a faster process for trading and turnover.

Better Management

Incoterms lays down terms for parties involved in trading. Both the importers and exporters know their responsibilities related to transportation, insurance and custom duties. For instance take CIF which is cost, insurance and freight. In case of CIF the seller will cover the insurance and transportation until goods reach the selected destination when the buyer will take over the responsibilities. Laying down terms prevents future disputes between buyers and sellers.

Compliance with Global Trade Regulations

It’s a must that all businesses comply with international laws and regulations when trading with different countries. Compliance with laws and regulations ensure trade security and safety. Companies can avoid penalties and reduce delays by following the set regulations.

Better Logistics

Global trade is mostly done by sea. That is why 80% of total goods are transported by sea. Incoterms specifically made for maritime trade makes this process much smoother. Terms such as FOB, CIF and FAS are vital in maritime trades. By implementing these Incoterms, traders can set up better logistics.

Important Incoterms

Let’s look at some of the commonly used Incoterms in international trade.

• EXW: The full term is Ex Works. It is mostly used in domestic trading. This term indicates the buyers will carry all transportation risks and costs from the seller’s place.
• FOB: Free on Board is mostly used in sea freight and bulk shipments. This means the seller will deliver goods to the buyer’s ship at the port of origin.
• CIF: Cost, Insurance and Freight is used for goods that are valuable and require insurance for security. Here sellers cover transportation and insurance to the port of destination.
• DAP: Delivered at Place are popular for e-commerce. The seller will deliver the goods to the buyer except import clearance.
• DDP: Delivered Duty Paid is used in complex custom systems. The seller will be responsible for import duties and the goods until they reach the buyer.

With each passing day, cross-border trading is rising, which needs even more Incoterms to catch up with the different natures of businesses. Different types of new Incoterms have been coming into the scene for the facilitation of trade. A business dealing in export or import of goods will greatly benefit by making themselves aware of Incoterms because it improves the logistics of their company.

The trade balance is a vital indicator of an economy. With it, one can determine the health of an economy. As international trade and globalization take up most of the economies of countries, trade balance has become even more important. If you want a deeper dive into the economy, understanding the trade balance can take you a long way. Here, we will discuss the trade balance in-depth and its importance to the economy.

What is Trade Balance?

Trade balances refer to the balance of imports and exports. The difference between the export and import of a country within a certain time frame in monetary terms is the trade balance. Companies of various countries make transactions with one another. Countries can record their transactions and their account status with the rest of the world by trade balance. The economic activities of a country can give it a trade surplus or a trade deficit.

• Trade Surplus: A positive trade balance means a surplus. Countries that export more than they import have a net positive balance. This is called surplus. China traded with the rest of the world worth $5.05 trillion amount of goods by October 2024. Among that, $2.89 trillion was in exports and $2.09 was in imports. The same gave China a $770 billion trade surplus.
• Trade Deficit: A negative trade balance means a deficit. Countries that import more than they export have trade deficits. In September of 2024, the USA imported $352.3 billion worth of goods while exporting $267.9 billion worth of goods. This resulted in a trade deficit of $84.4 billion.

Calculating Trade Balance

It’s quite simple to calculate the trade balance. All you need is data on total exports and imports within a certain period of time. The difference between them will tell you the trade balance.

Trade Balance = Exports – Imports

If exports are higher than imports, the outcome is a positive trade balance. So, the country is in a trade surplus. On the contrary, if it’s negative, the country has a trade deficit.

In October of 2024, Germany recorded a trade surplus of $14.6 billion. The country exported $135.8 billion worth of goods while importing $121.2 billion of goods. Their difference resulted in a trade surplus for Germany.

Importance of Trade Balance

Trade balance provides insights into the country’s economy and its position in the global economy. Some of the factors are:

Economic Strength

This surplus balance of trade means the country exports more than it imports while it needs. Indications are that such countries have a strong industrial backbone because they can manufacture many necessary products, ranging from a simple ballpoint to complex electric vehicles. This, again, is depicted in Japan. The other example includes South Korea. The country exports lots of high-tech products, such as vehicles and electronic devices, to countries all over the world. A country can have a trade surplus even without a strong manufacturing base if it exports natural resources or raw materials. Saudi Arabia is a good example that relies on the exports of crude oil to have a trade surplus.

On the other hand, a country that has a trade deficit indicates it doesn’t have a strong industrial base. So, the country has to rely on foreign imports to support the domestic needs. This is the case for most developing and underdeveloped nations. But this can also be true for developed nations, and the USA is a stark example. The USA shifted its manufacturing overseas, which resulted in a trade deficit over time.

Effect on Currency Exchange Rate

Trade balance influences the fluctuation of the exchange rate. If a country consistently retains a trade surplus, the value of the currency will go up over time. This is due to the increased demand for that particular currency to do business with the country. The Chinese Yuan has gained value over the years due to its strong trade surplus. So, a trade surplus can lead to an appreciation of currency.

Alternatively, if a country is always in a trade deficit, it negatively affects the exchange rate of the country. Most of the developing and underdeveloped countries see inflation due to trade deficits. The only exception is the US dollar since it’s the currency that is used for global trade, so even with trade deficits, the US doesn’t face severe inflation, unlike most countries around the world.

Impact on GDP

Trade balance is important in determining the GDP of a country. If the country has a trade surplus, that means the country is exporting more to the rest of the world. This means the country is seeing growth. So, a positive trade balance is GDP growth. On the contrary, a negative balance of trade means the country’s economy is slowing down and not seeing growth.

Debt and Foreign Dependency

Countries operating on continuous trade deficits have to borrow from other nations to keep their economy and country running. It is not viable long-term because it builds up the debt that the country won’t be able to pay back if it doesn’t turn the trade balance into a positive one. A country with a trade surplus, on the other hand, can invest in a growing nation to enjoy future returns from emerging economies.

Employment and Job Creation

A country that regularly maintains a trade surplus can invest heavily in their infrastructure and develop its manufacturing and industrial base further. This results in more job creation. As a result, unemployment goes down. Countries such as China and South Korea continue to expand in various sectors, creating new jobs for their citizens.

Trade balance provides information on a country’s economy and its trajectory of development. With a trade surplus, a country can thrive in the competitive global economy, while a deficit can stifle growth. Countries can implement various economic policies to manage their trade balance effectively for better economic growth.

As international trade takes the spotlight on the global economy, international shipping has become more important than ever. International shipping makes it possible to reach customers in different corners of the world. It is equally important for small businesses as well as large conglomerates. Logistics is vital in any success of any world wide business. With a deeper understanding of international shipping, business owners can tune their strategies to provide the best service to customers when it comes to product delivery. Here, we will discuss international shipping in depth.

Understanding International Shipping

Transfer of goods from one country to another through land, sea or air is international shipping. It can be as simple as ordering a product online from another country to as complex as exporting a large quantity of goods to international markets.

It’s been almost two decades since e-commerce has come to the business scene. But it is still seeing a substantial amount of growth. E-commerce sales in 2024 will reach approximately $6.3 trillion. It is an 8.4% increase from the previous year. Moreover, as more and more businesses adopt the e-commerce model, sales are likely to increase in the coming years. As a result, global shipping has become essential to the supply chain of products.

Recent studies by the Baymard Institute point fingers at the key factors that are hindering the growth of e-commerce. The first one is the high shipping cost. Almost 48% of consumers tend to leave their carts as they reach checkout due to the high shipping charges attached to the delivery. In addition, around 24% of shoppers abandon their carts due to not having a clear delivery timeline.

It has also been revealed that businesses that provide efficient shipping are likely to generate 20% to 30% more returning customers than businesses that fail to deliver products efficiently. So, it is important to understand the complex process involved in international shipping in order to improve business growth.

Steps Involved in International Shipping

Shipping Requirements

First, note down what sorts of amenities you are looking for in international shipping. Some of the factors to consider are:

• Product Destination: Where do you want to ship your goods? Different countries have different customs regulations for shipping products. So, knowing those sets of rules will help you create a plan.
• Shipping Speed: As a business owner who needs to ship products or just someone sending products to your homeland, you can decide what you want. You can choose faster delivery with express delivery or standard delivery, which will take a regular amount of time. Express deliveries come with an extra charge.

If you are shipping products to Europe from the USA, it usually takes 10-16 business days with standard delivery. On the other hand, express delivery takes 3-5 days.

• Product Type: Various countries have special regulations for certain products. Some countries might consider a certain product illegal, whereas others may consider them to be legal.

Choosing the Shipping Carrier

There are various international shipping carriers to choose from for shipping your products. Some of the popular carriers are UPS, FedEx, DHL and USPS. In 2024, DHL handled over 1 million shipments per day in 220 countries. Some of the key points you should consider before choosing your carriers are:

• Shipping Rates: Depending on the size and volume of your products, the shipping rate will vary.
• Service Coverage: Make sure the carrier you are choosing for delivery operates in the region.
• Delivery Guarantees: Carriers offer insurance with an additional fee to make up for delays and lost items.

Prepare Documents

Most of the delays that happen in customs are inadequate papers for exports and imports. The lack of proper documents raises alarms about illegal products within customs. This can lead to serious consequences such as fines and even confiscation of goods. Some of the documents you should keep an eye on are:

• Commercial Invoice: This is an in-depth record of transactions between parties.
• Packing List: This informs what kind of products your shipment contains.
• Bill of Lading: It is a legal document for the shipper and carrier.
• Customs Declaration Forms: It’s required for customs clearance.

Packaging and Labeling

Various shipping companies require you to package the product with proper labelling to comply with regulations. Proper packaging enables safe delivery of products. So you should use durable materials for your packaging as your products are in for a long ride. Labelling properly ensures your product reaches the final destination without any hiccups. So, you should provide the correct address and barcodes for the product. Moreover, you should include signs for products that are fragile and hazardous in nature.

Customs Clearance

There are various regulations to comply with when shipping to various countries. Customs rules and regulations are different for different regions. Some of the key points in customs are:

• Duties and Taxes: Various countries impose different levels of import duties and value-added taxes on the products.
• Harmonized System Codes: Customs are able to classify your products based on these codes.
• Customs Brokers: If your business takes up most of your time, you can hire a customs broker who is more familiar with international shipping for ease.

Tracking and Delivery

Carriers give a unique tracking number to senders to track their goods during delivery. Last-mile delivery is where the product is taken from the carrier warehouse and taken to the receiver. This part is the most intricate and expensive of the delivery process.

International shipping is complex in nature. But you can make it simpler by understanding the process. First, you have to note down the requirements and then choose the right carrier to provide shipping in compliance with the law. By following the process mentioned above, your shipping journey will be a lot smoother.

It was international trade that kick started the globalization process. As the world became smaller and countries became closer to one another, international trade became far more important than ever. By connecting nations through trading of goods and services, international trade has become the backbone of the global economy. In order to facilitate this global trading from one country to another smoothly, customs are at the heart of international trade. Customs ensure continuous flow of goods while safeguarding the interests of nations.

Functions of Customs in Trade

Customs primarily consist of government agencies that oversee import and export of goods from one country to another. They play vital roles in import and export of goods and services. Some of the key functions of customs are:

• Revenue Collection: Governments from around the world earn a hefty sum from levying taxes on imported goods. In 2021, import tariffs (interchangeably customs duties) were 2.8% of the entire global trade. The value represents the total amount of customs duties collected as a percentage of all goods traded globally.
• Trade Facilitation: Customs regulations are made to make crossing borders efficient. This has positive impacts on import and export. By reducing time and cost of doing business, customs facilitate more business.
• Enforcement of Regulation: Customs make sure importers and exporters abide by the rules set by local and international regulation bodies. This helps by restricting the movement of banned and illegal goods from one country to another.
• Economic Security: Customs play a key role in preventing illegal cross border activities such as smuggling. They also have an active role in protecting intellectual property rights.

Customs in Trade Facilitation

Trade facilitation is the efficient movement of goods and services from one country to another. By making the customs procedures simpler and less time consuming, more business can be brought to a country. Customs authorities can promote economic growth by cutting the cost of business and easing bureaucratic complications. 

The global trade was worth $28.5 trillion in 2021 which increased to $32 trillion in 2022. So the importance of customs has increased overtime. The 2022 World Bank study titled “Trading Across Borders 2022” highlighted the fact that an efficient customs system can halve trade costs for emerging and developing economies. So it means with a better customs system trade cost can go down as much as by 50%.

Some of the methods that can contribute to the growth are as follows:

• Automated System: With ASYCUDA (Automated System for Customs Data) customs professionals can fill up paperworks faster and that will speed up the whole process.
• Single Window System: Business can submit the necessary document through a single channel to avoid complex hurdles and get faster response.
• Risk Management: Customs should deploy new technologies for faster inspection. Moreover instead of going over every consignment more focus is given on high risk consignments.

Contribution to Economy

Governments around the world earn a substantial amount of custom duties from global trading. These earnings are a huge help in funding the development of infrastructures.

• Developed Countries: Usually developed countries impose lower tariff rates on products. So a developed nation usually gets around 5% of its government revenue from custom duties. They make up the rest with income tax and corporate tax as these tend to be higher in a developed economy.
• Developing Countries: Custom duties contribute a significant amount for a developing country’s revenue. Government earns up to 20% to 30% of revenue from custom duties alone. It is mostly because developing nations impose higher tariff rates on imported goods.

Combating Smuggling and Security Threats

In 2019, global trade of pirated and counterfeit goods amounted to $464 billion which was equivalent to 2.5% of global trade. This trend didn’t slow down; it only saw an increase over the last years. ICC (International Chamber of Commerce) predicted that piracy and counterfeit goods will drain $4.2 trillion from the global economy and put 5.4 million people out of legitimate jobs by 2022. So it is of utmost importance to implement an efficient customs system that will work with government agencies in tandem worldwide to combat piracy. An efficient global network of customs systems can battle the ever growing piracy market.

Future of Customs in Trade

As technology evolves customs procedures can take advantage of these technologies to increase the efficiency of global trade. Some of the key technologies to adopt are as follows:

• Blockchain Technology: This will promote more transparency by creating solid records of shipments that are hard to manipulate.
• Artificial Intelligence: AI can be used to identify risky cargos by analyzing the vast amount of data. By efficiently analyzing data AI can aid in promoting more business by reducing processing time. It is estimated that AI can increase customs efficiency by 20% to 40% in various sectors.
• Green Customs: By promoting goods and services that are environmentally friendly and strictly regulating goods that are bad for climate, customs can significantly contribute to a greener world.

Customs authorities are part and parcel of keeping the global economy wheel running. They make sure businesses are taking place in accordance with law. Various challenges such as complex bureaucracy and corruption make the customs procedure inefficient. But with the implementation of technologies and global cooperation these hindrances can be overcome in a way that will enable economic growth worldwide.