Localized Barriers to Trade: What They Are and How They Harm Our Economy

12 November 2014 Manufacturing Industry Advisor Blog

Localized Barriers to Trade (LBTs) are an increasingly common phenomenon across the globe. Such barriers hurt job creation, impede growth, and limit economic opportunities. What does this mean for manufacturers in the United States? Already faced with traditional trade and investment restrictions such as tariffs, manufacturers now must face additional challenges from forced localization, intellectual property theft, and export bans.

LBTs is an umbrella term that includes a variety of policies that local governments often implement to promote their respective country’s growth rates at the expense of global trade. For example, one of the ways in which local governments have sought to promote their own country is by turning to rules and regulations that pressure foreign business to localize economic activity and create domestic jobs, including producing locally what they could import more efficiently. While such measures can sometimes generate growth in the short term by reducing imports and/or increasing exports, they do so at the expense of long-term growth.

Forced LBTs often block or inhibit trade in strategic and innovation-intensive sectors and undermine U.S. companies’ hard-earned advances in technology and productivity. LBTs, particularly requirements to use locally produced components or raw materials, also can have a serious impact on the global supply chains that are so prevalent in the manufacturing sector today.

In addition to harming U.S. manufacturing directly, LBTs inhibit global economic growth by stifling innovation. Innovative industries such as the life sciences, clean energy, and aerospace industries, are characterized by relatively high fixed costs of initial research and development and design but much lower marginal costs of production. As such, it is imperative for innovative industries to have access to a large and global market, which allows these industries to fill cost and talent needs. LBTs reduce access to global markets, both for the resources that innovative companies need and the goods that they produce.

The threat posed by LBTs has not gone unnoticed. The Office of the United States Trade Representative (USTR) is the primary government agency tasked with identifying and eliminating unwarranted LBTs and, as such, has been able to increase United States exports and support good, high-paying jobs here in the U.S. Some of the USTR’s recent successes include:

  • Defending market access for U.S. prepackaged foods in Chile with a potential impact of $255 million annually in prepackaged food trade to Chile.
  • Overcoming barriers to certification in Mexico for high-density polyethylene (HDPE) sanitation pipes manufactured in the U.S. with an annual impact of $100 million to US HDPE manufacturers.

These are but a few of the recent successes the USTR has had in overcoming threatening LBTs. The nation’s focus on eliminating LBTs demonstrates its commitment to safeguarding not only the United States but also the global manufacturing industry and its commitment to expanding the global market.

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