Figure 1 illustrates the effects of world trade without the presence of a tariff. Disadvantages In the long term, trade protectionism weakens the industry. There are more risks for currency manipulation.
Tariffs increase the prices of imported goods. Unfortunately for consumers - both individual consumers and businesses - higher import prices mean higher prices for goods.
That also means Chinese consumers purchasing American goods must pay more for their items. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Then the reality of the situation set in for investors. This would make its exports cheaper and more competitive.
For example, in developing countries which are unable to export goods because of high tariffs, trade barriers can limit their ability to prosper and expand their operations.
Local Content Requirement Instead of placing a quota on the number of goods that can be imported, the government can require that a certain percentage of a good be made domestically.
Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods, and can reduce the likelihood of retaliatory taxes.
For example, a country may place a quota on the volume of imported citrus fruit that is allowed.