What Are the Gains and Losses of a Trade Restriction

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The Answer is There are two types of losses from a trade restriction, such as a tariff or quota. First, it involves a waste of resources that could be freed up to produce other goods and services under free trade. Second, a trade restriction creates a deadweight loss, which is the value of lost gains from trade. In the case of a tariff, the market price increases so that there is a loss in consumer surplus. On the other hand, a higher price raises producer surplus, which is the gain from domestic producers. In other words, domestic producers gain while domestic consumers lose with a trade restriction.

What Are the Gains and Losses of a Trade Restriction

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