Question

Discuss why countries create barriers to trade when economic theory shows trade as being beneficial to a nation. Who benefits from international trade? Who loses from international trade? How can the negative effects of the failures from international trade be reduced? Do you agree with the concept of trade barriers? Why or why not?

Answer 1

Even though international trade is considered to be beneficial for countries, some countries create trade barriers in order to protect their sunrise or sunset companies. Sunrise companies are those that are in their early stage of development i.e. infant industries who need protection from extreme outside competiton in order to develop their core compatencies.

On the other hand, sunset companies are those which have operatef for a very long time but due to increasing international competiton are losing out the share of their market. For example. Handicraft industry in India.

Sometimes, barriers are also appointed in order to create a fair playing field for all domestic and international firms.

Those companies for whom international trade barriers are put in place benefit from them. The companies in other countries lose because their products are now restricted.

In order to reduce the negative effects of failures from international trade, trade barriers should be reduced, either wholly or slowly in stages, in order for the flow of goods and services to increase across international borders and thus increasing the competitiveness of companies in both th countries.