Question

please write a paper that argues either for or against government intervention in foreign trade. Describe both the benefits and the problems that can occur when governments interfere with foreign trade, describing the different barriers that governments can impose and also the steps they sometimes take to encourage international trade.

Answer 1

In particular, developed nations still lack the institutional infrastructure required to efficiently enforce income or corporate taxes (see income tax). These nations ' governments can then fund their operation by resorting to tariffs on imported products, as those levies are fairly easy to enforce. However, the amount of tax revenues which can be obtained through tariffs is often reduced. If the government wants to raise its tariff revenue by introducing higher duty rates, this can choke off import flows and therefore reduce tariff revenue rather than raise it.

The most common reason for tariff enforcement is possibly that particular domestic industries need tariff protection for survival. Comparative-advantage proponents would obviously argue that the industry in need of such security will not exist, and that the workers so employed should be shifted to more comparatively productive occupations. Citizen welfare benefits taken as a whole would more than balance the loss of welfare of those groups impacted by import competition; that is, overall real national income would increase.

New and increasing industries need to be shielded from foreign competition, especially in the less developed countries. They argue that costs are decreasing with growth and that some companies need to reach a minimum size before they can compete with well-established industries outside the world. Tariffs can protect the domestic market before the sector is globally competitive and, it is sometimes claimed, once the sector has reached maturity the cost of defense can be recouped.

Protection by shutting off markets reduces companies ' potential to achieve large-scale economies by exporting. When a group of countries imposes security of the infant industry, it will break the market; each country may end up with low, regional, inefficient production, thus reducing the wealth of all the countries. One way in which less developed nations have tried to tackle this problem was by forming customs unions or other regional groups

Tariffs or quotas are often often suggested as a way to preserve domestic employment — especially in times of recession. Nonetheless, among modern-day economists there is almost unanimity that plans to address unemployment by tariff increases are misguided. To the degree that a higher tariff is successful for this reason, it actually "exports unemployment;" that is, in some foreign country, the increase in domestic jobs is balanced by a fall in demand.