What is a Trade Embargo?

//What is a Trade Embargo?
What is a Trade Embargo? 2017-10-10T16:48:34+00:00

Definition: A trade embargo is a governmental order to restrict trade of certain goods or all goods entirely with a foreign country. This typically stems from political differences between the two nations or economic circumstances that make commercial trade undesirable.

What Does Trade Embargo Mean?

What is the definition of trade embargo? Trade embargos restrict trade between countries for a variety of reasons. The most common reason is political conflicts between the nations. For instance, one nation doesn’t like the actions of another, so it decides to not allow the export or import of goods or services to or from that country. One of the most notable examples of this embargo is the American Cuba embargo. The US government disagrees with the Cuban government and thus has cut ties with it making it illegal for US companies to trade with Cuba. The hope is that the lack of trade will hurt the Cuban economy and will force the Cuban government to comply with the US government.

This isn’t the only form of embargo, however. Countries often engage in strategic embargos that restrict the trade of military goods and services to other countries. This is common for industrialized countries support some countries with weapons and military trading and not support others. This is true in the case of Iran. The US government does not supply military support to Iran, but Russia does.

Let’s take a look at an example.

Example

Japan is a highly populated island nation full of mountains and does not have much room for agriculture. Thus it has to import much of its food to feed its population. The US, on the other hand, has a strong agriculture industry and exports its products all over the world. Japan and the US enter into an agreement where the US is supposed to supply the agreed amount of product within a period for a reasonable compensation.

Since Japan wants to support its domestic production of food, it decides to charge tariffs on the US imports to level the playing field for domestic agriculture. The US considers the tariffs and finds the rate increase unjustified. Even after rounds of discussions, the two countries are not able to reach a trade agreement. This situation may result in a full embargo where the US stops exporting food to Japan in hopes that Japan will reconsider its tariff rate.

Summary Definition

Define Trade Embargos: Trade Embargo means a government stop on trade with a particular country as a whole or with a specific product.