Trade Barriers: Economic Effects on Saudi Arabia and US Trade

This report examines the impact of trade barriers, focusing on the trade relationship between Saudi Arabia and the United States. It begins with an introduction to trade barriers, explaining different types such as tariffs, quotas, and non-tariff barriers, and their general effects on economic efficiency, growth, and employment. The report then provides context by discussing the reasons behind the imposition of trade barriers, including protection of domestic industries and responses to unfair trade practices. A significant portion of the report analyzes the specific trade barriers imposed by Saudi Arabia on US firms, detailing restrictions related to localization, technical regulations, intellectual property rights, and delayed payments. The report also covers the imposition of import tariffs and excise taxes. The analysis includes the positive and negative impacts of these barriers on both countries, considering effects on economic output, employment, and the value of currency. The report concludes by summarizing the effects of trade barriers on both countries and emphasizing the need to balance the protection of domestic industries with the potential negative impacts on overall economic growth and trade relationships.

Running head: TRADE BARRIERS
Trade Barriers
Name of the Student
Name of the University
Author note

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Introduction
Government imposes trade barriers in order to boost economic output and efficiency and
to protect the domestic economy of a country. The effects of trade barriers on the growth and
development of a country are significant (Alharbi, 2014). It adversely affects the economic
output and employment generation. Even though Saudi Arabia is open to trade, it imposed some
regulations on the US to protect the domestic firms of the country. As a result, the domestic
economy of Saudi Arabia has protected from the exploitative US firms. However, the growth of
US economy hampered and size of the economy reduced.
Body
Restrictions imposed by the government on international trade is called trade barriers. To
protect domestic industries, government imposed additional limits or costs on imports and
exports. Imposition of restriction on trade increases the availability or value of the traded goods.
Trade barriers are of three types such as Quotas, Non-Tariffs and Tariffs. Generally, trade
barriers are counterproductive and reduce economic efficiency of the countries (Alkhateeb,
Mahmood & Sultan, 2016).
There are several reasons behind imposition of trade barriers such as protection against
other countries, protection of infant or growing industries, protecting domestic jobs, retaliation,
to increase demand for domestic goods and avoid unemployment. Large number of foreign
competitors hamper the growth of the infant or growing industries. In addition, existence of
domestic industries are threatened by the expanded competition from imported products, which
creates unemployment. Trade barriers decrease the competition from import products and

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increase the demand for domestic products (French, 2016). It defends a country from the
exploitative countries because the dumping system is detrimental for the growth of a nation.
The erection of trade barriers shift resources from more efficient economic activity to less
efficient economic activity and increase prices (Hornok & Koren, 2015). The employment and
output of a country declines, as restrictions imposed on trade increased costs for consumers and
producers. As a result the income of consumers and producers both reduce and leading to
economic downturn. Alternatively, it also appreciate the currency value of exploitative country
and induce the costs of goods sold in the international market by the exporters. The negative
impacts of the trade barriers are measured with the help of comparative advantage theory.
Sometimes, it fails to achieve the desired outcome and causes turmoil in the global market of
trade. It indicates that negative effects of trade barriers subsides the short term benefits it
brought.
Although, the market of Saudi Arabia is predictable and open to trade, various market
barriers were imposed by the Saudi Arabian government (SAG) on firms of United States. The
barriers were imposed in the areas includes localization and performance requirements, technical
regulations and standards, the Arab league boycott, delayed payments, intellectual property
rights protection and dispute resolution. It imposed technical regulations on US firms, developed
by the Gulf Standards Organization (GSO) and the Saudi Arabia Standards Organization
(SASO). It created vital access restrictions for consumers and industrial goods exported from the
US (Li & Beghin, 2017). Therefore, it affected manufacturers of US and leading to reduction of
exports.
The US firms are asked to purchase local content by the government controlled firms of
Saudi Arabia. Imposition of such restriction to enhance revenue generation of local firms

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discouraged the growth of US firms. The deterioration of intellectual property rights led the
enforcement of intellectual proper right regime in the country. Several sectors of the country
suffered due to exploitation of intellectual property rights such as software, pharmaceutical,
signal piracy, digital and counterfeit goods (Chen & Li, 2014). It imposed burden on the US
firms to follow standard fix by the government for intellectual property rights. Government
would penalise the organization if the situation continued. Delayed payment is an important
problem for the country, which affected sectors like education, construction and health. To solve
the increasing problem of delayed payment, government introduced an electronic platform for
checking the status of payment.
Other than these trade barriers Saudi Arabia imposed 5% import tariffs on US. Tariffs
were imposed on products includes carbonated drinks, energy drinks and cigarettes. The
additional excise tax was also imposed on these goods. Thus, the prices of the products increased
and decreased revenue generation (Beghin & Bureau, 2017). It launched an additional tariff on
the products, which are manufactured in domestic market. In this way, the domestic market is
protected from the foreign competitors. It boosted competitiveness in the domestic market and
scaled down the imports. The measures taken by Saudi Arabian government helped in the
development of the country. Therefore, the domestic economy of the country stabilized and
protected from the exploitation of US firms.
However, imposition of restrictions protected the economy of Saudi Arabia from
predatory country like US. It has adverse effects on the economy of US. The increase in costs
due to trade barriers reduced the overall output and employment of the country. It may also
appreciate the value of US dollars and burdened consumers with higher prices (Egan &
Guimarães, 2017). Finally, the revenue of the exporters will scale down, as appreciation of

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dollars will increase the prices of goods sold in the international market. Thus, the incentives for
investment and work will decline and income of both consumers and producers will decrease.
Conclusion
Trade barriers imposed by the government on predatory country brings positive and
negative impact on the both countries participated in trade escalation. Trade erection by the
Saudi Arabia to protect domestic firms from exploitative US firms, influenced the growth of US
economy and firms. It decreased employment generation and increased the costs of consumers
and producers. The domestic industry of Saudi Arabia boosted due to protection of infant
industries and reduction of competition from import products. Therefore, implication of trade
barriers declined overall economic output and hampered growth.

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References
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