International Trade

The International Trade Barrier Index: A New Resource to Enhance Our Understanding of Global Commerce

The Property Rights Alliance, creators of the International Property Rights Index, recently launched a sister index, the International Trade Barrier Index (TBI) for 2019. The TBI evaluates restrictions to free trade across 86 countries that comprise 83% of the world’s population and 94% of the world’s GDP. Through its analysis of tariffs, non-tariff measures (NTMs), service restrictions and trade facilitation (subcategorized by property rights, logistics, digital freedom and participation in Regional Trade Agreements), TBI is a comprehensive tool for understanding the barriers to international trade.

A country’s TBI rating is the average of its scores in tariffs, NTMs, service restrictions and facilitation. The global average TBI score is a 4 out of 10, where 10 represents the highest use of trade barriers. The average scores for each category are tariffs – 5.17, NTMs – 1.87, service restrictions – 4.38 and facilitation – 4.57.

The global rankings offer clues to trade barriers around the world. Singapore and Hong Kong currently rank first and second, respectively, with both earning low use of trade barriers scores across all categories. On the other end of the continuum were China and India, which placed 85th and 86th.

The NTMs score is comprised of two parts: NTMs Applied to All Partners and NTMs Applied Bilaterally. The two countries with the highest NTM scores, by a significant margin, are China and the United States, with NTM scores of 5.79 and 4.50, respectively. Interestingly, the United States’ scores – other than its NTM score – were typical for a high-income country, but with such a high NTM score, the United States ranked 54th in the Index. America applies non-tariff measures bilaterally to target specific countries, whereas China uses them with all trading partners in a more universal protectionist policy.

India has the highest service restrictions – a government attempt to dissuade non-Indian service professionals from operating there. India’s service restrictions are consistently higher than average across all service fields (financial, telecom, retail, transportation and professional) when compared to other lower-middle income countries and the Asia-Pacific broadly.

Trade facilitation is composed of multiple subcategories, most prominent of which are digital trade restrictions. Typically, authoritarian regimes are the worst offenders, and not surprisingly, China ranks 74th and Russia 82nd. However, France and Germany are 77th and 73rd, respectively, due to their advocacy for digital trade barriers within Europe.

Generally, TBI scores correlate with a country’s income level. Low-income countries tend to have the highest barriers to international trade, higher tariff scores, weaker facilitation of property rights, membership in fewer trade agreements and market entry restrictions on foreign businesses. High-income countries tend to have the lowest barriers but the highest NTM scores. This phenomenon results because higher-income countries utilize NTMs to pursue protectionist policies in order to curry favor with various domestic interest groups.

The Index also identifies trade barrier trends for regional groupings. Oceania and Western Europe have the lowest TBI, followed by North America. Eastern Europe, followed by Asia, has the highest TBI score. Asia (with both Singapore and Hong Kong, as well as both China and India) has the greatest variance in scores. Western Europe has the lowest variance in scores, due to EU trade rules.

TBI accurately describes trade barriers as an abuse of freedom and a detriment to sound commercial policy. TBI results strongly correlate to the Cato Institute’s Human Freedom Index and the Legatum Institute’s Prosperity Index, with correlations of 0.78 and 0.76 respectively. A country’s TBI score also correlates strongly with the Corruption Perception Index, Freedom in the World, Economic Freedom, Human Development Index, and Press Freedom, providing strong evidence that fewer barriers to free international trade encourage not just economic prosperity, but also the expansion of liberty.

The Index is a useful resource for anyone interested in advancing free markets, understanding how trade barriers affect a nation’s economy and identifying global trends. The  Index also includes case studies that delve deeper into issues like the digital service tax, free trade agreements and the individual circumstances of a few countries.