Non-Tariff Barriers
TL;DR
Background: While President Donald Trump’s various tariff proposals continue to grab headlines, non-tariff barriers (NTBs) represent a more pervasive form of trade protectionism, with dramatic effects on the global flow of goods and services.
NTBs are often justified as needed to correct some alleged market failure. These include preventing environmental damage (e.g., banning imported mahogany to prevent deforestation), correcting asymmetries in consumer information (“Made in the USA” labeling regulations), or protecting public health (banning imports of hormone-treated beef).
But… In practice, many NTBs function as tools for rent seeking, wherein special-interest groups exploit regulations in order to gain economic advantages at the expense of broader social welfare. To make matters worse, NTBs often become entrenched due to regulatory capture, where agencies prioritize industry interests over the public welfare.
However… NTBs represent a dual-edged sword in global trade policy. An optimal NTB design requires recognizing that the claimed benefits of improved consumer protection, national security, and public health and safety may come at significant financial cost and reduced consumer choice.
KEY TAKEAWAYS
What Are Non-Tariff Barriers?
NTBs include a wide range of regulatory, administrative, and procedural measures that governments use to influence trade flows without relying on direct tariffs. Common NTBs include import quotas and licensing requirements; technical standards and sanitary regulations; local-content requirements, like “Buy American”; and overly complex customs procedures
The proliferation of NTBs has accelerated even as global tariffs have declined under multilateral agreements, like those administered by the World Trade Organization. Some of these NTBs are inadvertent side effects of measures taken to address legitimate public-policy objectives (e.g., environmental protection, consumer safety). But many (perhaps most, including many that also seek to address ostensibly legitimate public-policy goals) are driven by the goal of protectionism.
We Must Protect the Public
NTBs are often justified to correct alleged market failures, such as negative externalities or information asymmetries. For example, it’s argued that the United States bans the import of mahogany wood to reduce widespread illegal logging and unsustainable harvesting practices that threaten the survival of mahogany trees in their native habitats. The country’s strict “Made in the USA” labeling regulations are deemed necessary to reassure consumers that, if they buy a product that advertises it was made domestically, then nearly all of that product was made in the United States.
When a market failure cannot be identified, proponents of NTBs often fall back on national security or industrial policy as justification. For example, the Jones Act restricts waterborne cargo transport within the United States to U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built vessels. The law was meant to bolster the U.S. maritime sector and create a ready labor pool from which the military could draw when needed.
We Must Protect Producer Profits
In practice, concentrated interest groups exploit regulatory processes—such as NTBs—to increase profits and extract rents, imposing deadweight losses on the economy through reduced competition and higher consumer prices. On this view, NTBs are seen as a form of rent seeking, with alleged market failure or national-security and public-health concerns serving as a fig leaf for the true motivation.
For example, nearly every economics textbook points to the U.S. sugar-quota program as an example of such rent seeking. Paul Krugman and Robin Wells’ textbook notes: “This quota is difficult to rationalize in terms of any economic argument.” Nevertheless, sugar growers “are very aware of the benefits they receive from the quota and make sure that their representatives in Congress are also aware of their interest in the matter.”
It Usually Ends in Regulatory Capture
Regardless of the stated justifications for NTBs, if they are left in place for a sufficiently long time, an entrenched group of the rules’ beneficiaries will lobby to keep or expand the barriers. This is the well-known concept of regulatory capture, in which the agencies that regulate an industry act to advance that industry’s interests, rather than the public good.
The U.S. sugar quota and the Jones Act have existed for generations. Despite mounting evidence that these NTBs harm U.S. businesses and consumers, little serious legislative effort has been made to remove these barriers. While proponents of these protectionist policies make up a small slice of the electorate, they have acquired pockets so deep that they can successfully lobby to keep the programs in place.
Efforts to address NTBs, such as the Transatlantic Trade and Investment Partnership (TTIP), highlight the tension between regulatory coherence and industry influence. The TTIP aimed to harmonize U.S.-EU standards, but faced resistance from sectors that feared losing regulatory autonomy. For example, U.S. proposals to streamline testing and certification processes for industrial goods were seen as a way to benefit U.S. firms competing in EU markets. At the same time, EU demands for place-of-origin appellations (e.g., “Champagne”) were seen as a way to protect niche agricultural producers. The first Trump administration halted TTIP negotiations, with the European Commission declaring soon thereafter that the discussions were “obsolete and no longer relevant.”
Tit-for-Tat, or Realpolitik?
Early in his second term, President Donald Trump announced a new tariff policy outlined in a presidential memorandum entitled the “Fair and Reciprocal Plan.” The memo directs key trade and economic U.S. government agencies to take action against trading partners that impose tariffs, taxes, NTBs, or other restrictions on U.S. goods and services.
Trump’s approach to trade has been derided as little more than a tit-for-tat policy, but it may also involve a dash of realpolitik. The threat of tariffs can be used to extract other policy concessions—such as Trump’s tariff threat to encourage Colombia to accept military flights carrying deportees as part of his immigration crackdown.
That’s the stick, but there’s also a carrot. Once tariffs or NTBs are in place, the promise of removing these trade barriers can be dangled to extract additional concessions.
NTBs may be useful in addressing potential market failures, but they are also prone to capture by protectionist interests. An optimal NTB design requires recognizing that the claimed benefits may come at a significant financial cost and reduced consumer choice.
For more on this issue, see the Truth on the Market post “The Only Thing Worse Than Tariffs Is Non-Tariffs.”