Appendix - American Compass

A guide to trade barriers and market distortions

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If the United States seeks to return to more reciprocal trade relations, policymakers must recognize the outsized role non-tariff barriers play in trade imbalances. This appendix aims to provide a comprehensive list of common trade abuses and trade barriers and explain how such policies advantage an economy’s goods over those of foreign producers. Every country, including the United States, engages in at least some of these practices. Thus, the point is not that these practices must all be curtailed, but rather that perfect competition among the World Trade Organization’s 166 members is an unrealistic objective. There are too many ways for countries to advantage domestic goods over foreign goods.

More importantly, this appendix is meant to illustrate further why simply bringing tariff rates between trading partners into parity, or eliminating tariffs altogether (i.e., “zero for zero”), will not guarantee fair or balanced trade. Although tariffs or a market access charge may seem like blunt instruments to counter these practices, they are often the most effective means to counterbalance non-tariff barriers, either by offering additional leverage in trade negotiations to discontinue specific abuses or by directly offsetting their economic effects.

This list is informed by the National Trade Estimate (NTE) Report on Foreign Trade Barriers, issued annually since 1985 by the Office of the U.S. Trade Representative, which contains more detailed country-by-country examples of specific trade barriers. The report defines trade barriers as “government laws, regulations, policies, or practices—including non-market policies and practices—that distort or undermine fair competition.” The list includes “measures and policies that restrict, prevent, or impede the international exchange of goods and services, U.S. foreign direct investment, or U.S. electronic commerce.”

1. General Import Barriers

General import barriers distort trade by directly disadvantaging imports as they enter a country’s economy. General import barriers include tariffs, import charges, import quotas, import licensing regimes, and customs barriers.

Tariffs: A tariff is a tax or duty placed on imported goods or services. Tariffs can be levied in two ways. One method is through an ad valorem tariff, which is assessed as a percentage of the value of a good (e.g., 10%). These tariffs ensure that tariff revenue rises and falls in line with the price (or value) of imported goods by maintaining a set rate; however, the declared value of goods must be more closely monitored to ensure accurate valuations. The other method is a specific tariff, levied as a per-unit fee (e.g., $2 per pound). These tariffs are easier to administer because they do not require an independent assessment of a good’s value, but they do not automatically rise or fall with prices. Therefore, inflation can significantly erode effective tariff rates on goods with specific tariffs over time. In some cases, countries combine both forms of tariff on certain goods (e.g., 10% + $2 per unit), which are commonly referred to as mixed or compound tariffs.

Under the WTO agreements, each country has a set of “bound” tariff rates which it has agreed not to exceed. Most countries have lower “applied” tariff rates, which refer to the rates at which tariffs are presently set at a given point in time. The U.S. simple average bound tariff rate under the WTO agreements is roughly 3.5%, while the simple average applied rate was 2.7% as recently as 2023. (The weighted U.S. average was even lower in 2016 at 1.5%.) In comparison, the world’s average tariff rate on U.S. goods was 6.7% as of 2023.

Further data from the Observatory of Economic Complexity (OEC) show recent average tariff rates on U.S. goods of 17% in India, 13.4% in Argentina, 12% in South Korea, 7.5% in China, and 7% in Mexico. This baseline disparity in applied tariffs between the U.S. and other nations was permissible under WTO rules, leaving little ground for the U.S. to secure more reciprocal rates based on prior commitments. Higher tariff rates give a nation’s goods an advantage over imports in its domestic market.
Import Charges: Beyond tariffs, countries may also charge processing and inspection charges, environmental fees, or port fees on imported goods or shipments of goods. Like tariffs, these measures directly increase the costs of imported goods relative to those of domestically produced goods, creating a market disadvantage for imports.
Import Quotas: Import quotas are limits on the value or quantity of a specific good that can be imported into a country over a given period (e.g., annually). Rather than increasing the relative price of imported goods, quotas attempt to limit the total amount allowed into the country. These can be imposed in three ways. An absolute quota sets an explicit cap on goods imports, beyond which imports are banned. A tariff-rate quota (TRQ) allows a specific volume of imports to receive a lower tariff rate before a higher rate applies once the cap is reached. A voluntary export restraint is an arrangement made with a specific exporter to enact a self-imposed limit on certain exports.

Quotas are often used to protect domestic industries in particular sectors or to maintain higher foreign currency reserves, which accumulate when a country runs a trade surplus and diminish when a nation runs a trade deficit. Quotas are sometimes welcomed as an alternative to tariffs because they can result in a premium for exporters who do manage to sell into a market before the limit is reached—a limited supply naturally raises demand, allowing exporters to command higher prices.
Import Bans and Licensing Restrictions: Some countries explicitly ban certain imports, including services, from their markets. Beyond explicit bans or prohibitively high tariff rates, these bans can be effected through arcane licensing regimes and restrictions on foreign service and digital service providers.

Customs and Trade Facilitation Barriers: Customs procedures are standardized across nations to facilitate greater ease of trading. Some nations introduce regulations or requirements designed to delay or complicate international transactions, including excessive documentation protocols, short-staffing or underfunding customs operations and port infrastructure, duplicative or inefficient processing systems that require interaction with multiple offices or agencies, use of outdated processing technologies, subjective valuation methods, inconsistent product classification, and extortion of unauthorized processing fees. These practices result in slower customs clearances, higher costs, more errors, greater delays, lower efficiency, and increased uncertainty for importers, thereby advantaging domestic industries.

2. Subsidies

Subsidies favor domestic industries over foreign competitors. While they can be issued as simple direct grants, there are several other ways governments can advantage domestic markets.

Outsized Government Procurement: Some governments buy an excess amount of domestically sourced goods to prop up national industries. While all governments must procure goods and services, spending that far exceeds a nation’s immediate needs allows domestic firms to lower prices for other customers and capture market share at the expense of both their domestic taxpayers and foreign competitors. The WTO’s Government Procurement Agreement aims to ensure that member states open procurement to foreign nations, but many large economies do not fully participate in or adhere to that agreement.
Local Content Requirements (LCRs) or “Buy National” Policies: LCRs offer favorable market conditions to goods or services (or content thereof) that are sourced domestically. LCRs are typically used in government procurement but can also be applied across the broader economy when a government offers lower tariffs (or higher quotas) on finished goods that incorporate more domestic content. Some governments also allow pricing preferences for domestic firms, meaning domestic firms can still secure government contracts if they are within a certain range of a foreign bid, even if they come in at a higher price. In certain service categories, services may still need to be rendered locally, even if technology has enabled effective remote administration. Data localization requirements, designed to ensure online records and content be collected, stored, and processed domestically, might also be considered under this category.
Government-Directed Investment (Window Guidance/Financial Repression): The banking systems in some countries employ “window guidance,” which steers the flow of credit in an economy to targeted sectors and industries. Often, this is accomplished by setting interest rates artificially low, effectively transferring returns that would otherwise accrue to an economy’s savers to its borrowers by lowering the cost of their borrowing. This favors domestic industry over domestic consumers and foreign producers.
Export Subsidies and Rebates: Some nations offer direct or indirect payments or rebates for exports to foreign countries. These can come in the form of subsidies, tax exemptions or deductions, or state-funded export promotion. This allows domestic industries to lower their prices when selling into foreign markets, thereby capturing global market share at the expense of other nations’ producers. For example, subsidies can be given to manufacturers further down the supply chain when they use domestic components in finished products. Value-added tax (VAT) rebates, which allow manufacturers to recover taxes paid on domestic raw materials and inputs when goods are sold abroad, are an example cited by the Trump administration. While such a policy is not discriminatory if both trading partners use a VAT, it does create a competitive advantage in cases where only one trade partner employs one.¹ Rebates that go beyond returning taxes paid can rightly be considered subsidies.
Export Performance Requirements: Export subsidies can also be imposed on foreign firms as a condition of market access. In such cases, countries require foreign companies to export a certain share of the goods they produce. This helps protect a nation’s domestic competitors while favoring a more positive trade balance.
State-Owned and -Directed Enterprises (SOEs): SOEs receive state funding and are governed by policy objectives rather than mere profit-seeking. They often receive favorable regulatory treatment and financing compared to non-SOEs, including foreign companies. Some also receive land grants and additional protections from bankruptcy. This often allows them to underprice their competitors and flood the market.
Excess Capacity and Dumping: Some governments incentivize excess production designed to price goods below cost and destroy market competition. Put more simply, dumping creates scenarios where production exceeds demand. In such cases, goods naturally expand their market share abroad as inventories swell and prices fall. In cases of price dumping, these goods are sold at lower prices than those in the markets where they are produced. This strategy can be driven by subsidies, excess investment, suppressed domestic demand, and state protections against losses or insolvency. Dumping by China and several other nations has negatively affected the U.S. steel, aluminum, shipbuilding, and solar panel industries.
Local Production Subsidies: Some nations give favorable tax treatments, loans, access to subsidized or exploitable labor, and land grants to foreign companies that locate production domestically. Often, these subsidies are offered in an attempt to steal a company’s technology, copy its business model, or counterfeit its products in the future. While the owners of foreign companies may still benefit (at least in the short term), employees of these companies immediately lose out as production is lured overseas.
Bribery and Corruption: According to USTR’s most recent NTE report, “In many countries and economies, [corruption] affects customs practices, licensing decisions, and the award of government procurement contracts. If left unchecked, bribery and corruption can negate market access gained through trade negotiations, frustrate broader reforms and economic stabilization programs, and undermine the foundations of the international trading system.”

3. Discriminatory Regulations

Discriminatory regulations create barriers to access for foreign firms. While there are several forms, they are all designed to favor a nation’s domestic industry.

Discriminatory Taxes: Under WTO rules, countries are expected to treat foreign and domestic goods equally once they enter the market. This principle is described in Article III of the General Agreement on Tariffs and Trade as “national treatment.” Some countries, such as the Philippines, impose higher excise taxes on imported alcohol. Others, like France, impose higher digital services taxes on foreign technology companies. Still others, like India, tax the total revenue of foreign companies, while taxing only the profits of their domestic companies. VATs could similarly be considered discriminatory against countries with different corporate tax systems, as VAT countries allow their companies to rebate the tax on foreign sales, while companies in non-VAT countries enjoy no similar rebate. Taxes can also be used to create incentives for using local content (e.g., by being contingent on goods containing a certain amount of domestic content). Countries may also disguise such taxes under facially neutral parameters by levying them only on certain import-dominant sectors, on “luxury goods,” or on firms of a certain size, but which, in effect, only or primarily affect foreign goods or companies.
Discriminatory Environmental Regulations: Some nations erect trade barriers that favor domestic industries based on environmental standards that only domestic sectors meet. For example, Denmark and Germany have each had container and packaging requirements that prevented the efficient import of most foreign beverages. Certain green subsidy programs in recent years have also favored domestic producers over foreign competitors. The European Union’s Carbon Border Adjustment Mechanism (CBAM) also threatens to favor European industries, both implicitly by attempting to force its trading partners to adopt Europe’s climate policies and explicitly through the provision of “free allowances” to its domestic carbon-intensive industries, such as cement, steel, aluminum, and fertilizers.
Discriminatory Technical Standards: Some nations impose more stringent technical standards on imports than domestic products, favoring local producers and, in some cases, barring import competition altogether. These standards can be enforced through testing, inspection, certification, registration, and licensing requirements. Such standards can be reasonable, but those in dispute are often not backed by rigorous scientific evaluation or safety metrics. Sometimes countries require independent testing where most other countries acknowledge reciprocal standards. For example, Japan has far more stringent standards for imported automobiles than other nations. South Korea requires imported electronics to be evaluated for safety in its domestic labs, despite most other nations recognizing international certifications. Some countries also require goods to have certain arbitrary specifications unique to their market. Others drag out review and permitting processes. In some cases, these technical standards and domestic testing requirements can also be used to extract proprietary information from foreign competitors.
Discriminatory Agricultural Standards: Many countries impose discriminatory agricultural standards on imported food and agricultural products. These standards are designed to favor domestic farmers, ranchers, and producers or keep foreign competitors out altogether. A common example is the abuse of Sanitary and Phytosanitary (SPS) standards, under which some nations ban goods produced with certain pesticides, processes, or additives, without scientific or nutritional justification. According to USTR’s most recent NTE report, these standards “restrict trade without furthering safety objectives because they are applied beyond the extent necessary to protect human, animal, or plant life or health” and are often “maintained without sufficient scientific evidence.” These standards may also be used to impose costly testing or certification requirements that domestic producers are not required to comply with. Other discriminatory standards establish grades or classifications that favor local varieties of the same products or that give domestic products a higher classification by default. Some countries require country-of-origin labeling for imports but not domestic products. Some nations also impose packaging and sizing requirements that favor local markets, thereby imposing additional costs on foreign exporters.
Lawfare and Opaque Regulations: In nations with weak and unreliable legal systems, foreign firms are often subject to weak legal protections, unwarranted government investigations, and overly complex or ever-changing regulations that create severe disadvantages against domestic competition. This could mean unclear or shifting standards for import licenses, frequent inspections or audits, superfluous paperwork and documentation requirements, and manipulations of customs classifications. These trade barriers are often covert, making them harder to document and prove in trade disputes.

4. Intellectual Property (IP) Theft

The World Intellectual Property Organization defines IP as “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” These are protected by law through patents, copyrights, and trademarks, which grant inventors and creators the exclusive right to profit from their products for a specified period. This reinforces incentives for innovation and creativity by ensuring that potential competitors cannot immediately benefit from an individual or firm’s inspiration or work.

In international trade, advanced economies are particularly vulnerable to IP theft from less advanced countries. When the United States opened its markets to foreign nations that maintained higher tariff rates and trade barriers, it expected to receive copyright protections for its advanced technologies and brands in return. Under WTO rules, these protections are defined in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This was a poor strategy for the United States, as the Federal Bureau of Investigation reports that IP theft from China alone costs the U.S. economy between $225 billion and $600 billion per year.

IP theft takes a few different forms in international trade, including:

Counterfeiting and Piracy: These practices involve the unlawful reproduction and sale of goods that imitate products with IP protections. Often, counterfeit and pirated goods are sold at a discount, effectively stealing both rightful profit and market share from the original producer and IP holder. Sometimes this is accomplished through reverse engineering foreign products. While private actors often commit these actions, governments can play a key role by failing to adequately enforce IP protections.
Cyberespionage and Cybertheft: These practices involve governments and private actors in one country hacking into the data of foreign competitors to steal designs, coding, algorithms, research, customer data, personnel data, communications, and other trade secrets. These data allow foreign competitors to steal technology, improve marketing to an existing customer base, and even blackmail competitors.
Forced Technology Transfer: Some countries, such as China, require companies to share their IP with the government or domestic firms as a condition of market access. While some foreign companies may receive assurances that their IP will remain protected, they often discover later that domestic competitors emerge offering similar technologies or products at lower prices.
Joint Venture Requirements: Similar to forced technology transfers, some countries require foreign companies to partner with domestic firms to attain market access. IP acquired through these joint ventures may then be leaked or transferred to the government or other domestic firms, undermining a foreign company’s competitive advantage.
Anticompetitive Practices: Some governments do not adequately enforce policies against anticompetitive market practices by their larger firms, including predatory pricing, exclusive dealing, and monopolization. This can significantly disadvantage smaller foreign firms in markets with strong national champions. In many cases, national companies are allowed to steal IP and technology from foreign competitors, who do not receive fair legal recourse, due process, or just compensation.

5. Tariff Evasion and Customs Fraud

Under current trade law, goods are tariffed based on the last country in which they undergo a “substantial transformation.” The qualifications for each good vary, but the principle applies to most complex, non-commodity traded goods. Because tariffs are based on where the production happens, their application usually does not consider which country owns the production facility. This basis for tariffs makes it difficult, in the modern integrated global market, to effectively target goods from countries that engage in widespread trade abuses. It also helps explain why the U.S. total trade deficit and China’s total trade surplus continued to grow after the U.S. imposed tariffs on China in 2018.

Illicit Transshipment: Transshipment refers to a country exporting goods to another through a third country to avoid certain tariffs, quotas, or sanctions. Often, a substantial percentage of production or content originates in the first country and only minor alterations (if any) are made in the intermediate country before the goods reach their final destination. Sometimes goods may simply be repackaged or re-labeled and given a fake certificate of origin. For example, after the United States placed tariffs on China in 2018, China began illegally shipping many goods, such as solar panels, to the United States through third countries like Malaysia, Thailand, Vietnam, and Cambodia.
Cross-Border Production: Cross-border production is similar to transshipment in its utilization of a third country to access another country’s market. However, where transshipped goods are produced or manufactured in the originating country, cross-border production refers to production that occurs in the intermediate country. To access a foreign market, a country may move production to a third country with which the desired market has a free trade agreement or more favorable trade relations. China employed this strategy after the 2018 tariffs, setting up production facilities in Mexico to export goods into the United States tariff-free under the USMCA. Partially as a result, the U.S. trade deficit with Mexico climbed from $78 billion in 2018 to $171 billion in 2024.
Undervaluation: Some nations falsely declare a lower value for goods being exported to pay less in tariffs, often using falsified or forged invoices or compliance documents. This could also mean falsifying the weight, quantity, or volume of a shipment to avoid tariffs or quotas.
Misclassification: Some exporters declare the wrong goods under the Harmonized Tariff Schedule to receive a lower tariff rate or avoid import restrictions.
Smuggling: This practice involves moving goods across the border without any customs inspection. This could be done completely outside a port of entry or through concealing higher-tariffed, restricted, or prohibited goods within shipments of other goods.
Temporary Import Schemes: Some imports are exempted from tariffs with the understanding that they will be re-exported later. If those goods are instead sold in the local market, tariffs are unlawfully evaded.
Split Shipments: This practice involves splitting one high-value shipment into multiple parts to avoid larger duties. While not technically a trade abuse by foreign nations, it is worth noting that, until recently, the United States allowed packages valued at $800 or less to be imported into the country tariff-free and with minimal scrutiny under the de minimis exemption. This effectively amounted to a free trade agreement with the world with no corresponding concessions to the United States. Given the lax screening of such imports, many U.S. trading partners were able to export counterfeit, pirated, and illegal goods, including fentanyl, to U.S. consumers, and likely many split shipments of goods above the $800 threshold. Policymakers should recognize the immense harm this has caused domestic producers of apparel, household items, and the vast majority of other goods priced under $800 and ensure the de minimis loophole remains closed.

6. Wage Suppression and Weak Labor Protections

Another way countries advantage their exports is by suppressing wages. While the cost of living varies widely among trading partners, disparities in the baseline price of goods on net should decrease over time as nations with higher demand increase their productivity. If labor costs are lower in a foreign country, it should be primarily due to disparities in productivity, as a firm’s profits should rise in tandem with sales and eventually translate into higher wages. Instead, many multinational corporations use labor whose wages are below their relative productivity in world markets.

Consider a firm that produces 100 shirts priced at $10 each using ten U.S. laborers. If all profits are distributed to the laborers, each should receive $100 if all the shirts sell. If the same shirts required 20 laborers in China due to lower productivity, but they are still sold at the same price, the Chinese laborers should hypothetically be paid only $50. But if productivity is the same and the Chinese laborers are still able to produce the shirts with 10 workers, or if the firm sells the shirts at $5 instead of $10, the workers still receive $50 instead of $100 for work that would earn them the higher wage in the United States. If those wage differences do not adjust over time as production and productivity increase in the Chinese economy, relative to the U.S. economy, Chinese workers are not being adequately compensated for their productive labor, and U.S. workers are being undercut by artificially low foreign wages.

While those variables are difficult to track across industries, a good benchmark is a country’s consumption share of GDP. In the United States, consumption accounts for approximately 68% of the country’s GDP. In China, consumption accounts for only 39% of GDP. The world average is 63%. This suggests that households in China are consuming significantly less than their economic peers worldwide.

Economically, a nation’s GDP is comprised of consumption, investment, government spending, and net exports (GDP = C + I + G + (X-M)). In China, GDP is disproportionately comprised of investment, government spending, and net exports compared to other nations. This is a deliberate byproduct of China’s economic policies. For example, many of the subsidies offered to Chinese industry come at the expense of households, either through higher taxation, weak labor protections, or borrowing conditions that favor producers over consumers.

If laborers are not being paid in aggregate for their productivity, it also means that fewer goods produced in China are affordable to the average worker, meaning export sales must make up a larger share of Chinese firms’ profits. If China’s currency does not appreciate as productivity increases relative to its trading partners, due to deliberate capital controls and currency manipulation by China’s government, its workers also have less purchasing power to buy imports, which encourages larger trade surpluses with China’s trading partners.

Workers can also be denied internationally recognized labor rights. According to USTR’s most recent NTE report, these rights include “the right of association, the right to organize and bargain collectively, a prohibition on the use of any form of forced or compulsory labor, a minimum age for the employment of children, and a prohibition on the worst forms of child labor, and acceptable conditions of work with respect to minimum wages, hours of work, and occupational safety and health.”

Other ways countries suppress domestic wages and consumption include:

Monopsonies: Monopsonies are monopoly employers in a given region or industry. If workers have only one (or few) viable employment options in their town or in the industry in which they specialize, that company can set wages lower than in a competitive job environment.
Segmentation: Some nations prevent certain subsets of their populations (women, minorities, migrants, youth, etc.) from being employed in higher-paying jobs and industries or from receiving certain work protections. This creates an exploitable class of workers that is often forced to accept lower compensation and worse working conditions.
Wage Controls: Some governments cap wages in strategic sectors specifically to advantage exports and capture global market share.
Union Suppression: Some nations limit collective bargaining and labor organizing to secure better wages, benefits, and working conditions. This allows domestic firms to underprice foreign competitors that enforce fair labor laws.
Denial of Benefits: Some nations violate their own labor laws to deny overtime pay, health care, and other non-salary benefits to otherwise full-time, qualifying workers in certain industries. In the case of overtime, some countries permit companies to set compensation based on output quotas, thereby incentivizing excessive overtime hours without adequate compensation.
Debt Bondage / Indentured Servitude: In some cases, workers are expected to work to pay off inflated or fraudulent debts from services provided by an employer, such as transportation, lodging, training, food, or political benefits.
Delayed or Withheld Wages or Documents: Employers in some nations confiscate workers’ government documents or withhold wages to prevent workers from leaving.
Forced Labor / Slavery: Some nations still allow employers to surveil, guard, and threaten workers to prevent them from leaving or demanding better working conditions.
Child Labor: Some countries still allow and encourage child labor, which permits employers to exploit children’s uniquely vulnerable status to lower labor costs.
Chinese Hukou: China’s hukou policy is a household registration system that combines many of the wage suppression strategies above. Unlike the United States, Chinese citizens cannot freely move among China’s provinces. The hukou system establishes internal passports that categorize its population into rural (agricultural) residents and urban residents, tying individuals to specific localities. Individuals are then limited to the public services available in their locality, including education, healthcare, pensions, employment, and housing. After millions of Chinese residents have migrated from rural to urban districts over the last 40 years, nearly 300 million face second-class status without access to basic services. Rural status leaves them vulnerable to lower compensation, poorer living conditions, and exploitation by urban employers, often in export-oriented industries.

7. Weak Environmental Protections

Lower environmental regulations give a country’s domestic producers a competitive advantage. This can include weak restrictions on air and water pollution and contamination, lax rules on waste removal and storage, minimal protections for vulnerable species, and unsustainable resource management practices (e.g., overfishing, overgrazing, poaching, deforestation, excessive water extraction, and soil degradation). These practices enable a nation’s producers to gain (often temporary) advantages by reducing or eliminating producers’ safety and environmental management costs.

While some countries give greater weight to environmental protection over industrial strength than others, policymakers should recognize that producing in nations with stronger environmental protections, such as the United States, is more beneficial for the environment than sourcing from countries with weaker environmental laws. Conversely, policymakers should also recognize that overly stringent environmental laws hinder international competitiveness. If a nation’s environmental protections are weak enough to directly endanger or sicken its own or a neighboring population, or to pollute international waterways, there is reason to suspect its industries are benefiting at the expense of trading partners with responsible environmental policies, as well as their own communities.

8. Currency Manipulation and Capital Controls

Nations can devalue their currencies to keep their goods competitive with those of their trading partners. A weaker currency makes imports relatively more expensive while making a nation’s exports relatively cheaper in foreign markets. Typically, countries devalue their currencies by having their central banks purchase large volumes of foreign currency, thereby increasing demand for the foreign currency and increasing the supply of their own currency. The foreign currency can then be held in reserve or used to purchase other assets denominated in that currency, such as bonds, stocks, or real estate in the same market. The country will then often “sterilize” the purchase of foreign currencies by issuing domestic bonds to cover the purchases, thereby preventing inflation. This allows the government to limit the amount of money circulating in the domestic economy, thereby preventing inflationary price increases or changes in domestic interest rates. A country can maintain this policy as long as it earns a higher return on its foreign investments than it pays out on the bonds it issues.

A country that desires to devalue its currency may also enact capital controls that prevent foreign countries from buying its currency in return, thereby preventing its currency from appreciating due to foreign demand. A country may also restrict foreign investment, including investments that result in the acquisition of (or increased equity in) the nation’s firms, real estate, debt instruments, or intellectual property. Alternatively, countries may impose restrictions or higher taxes on income and royalties repatriated to a firm’s headquarters in another nation. All of these policies are designed to protect domestic industries against foreign competition and to retain a greater share of the earnings of foreign firms that gain access to a nation’s market.