Example of Barriers to Trade

We can examine barriers to trade with the help of an example. Say the US economy is a free economy. There are no barriers to trade. An importer, Tom imports raw material from Europe. Now if the US government imposes import duty of 50%, this would increase the cost of production for Tom and he must reduce his imports. In a similar way, government can use non-tariff barriers like import licencing. The government can prohibit the issue of the licence to Tom in order to eliminate the imports.