Question

What are the advantages and disadvantages of setting up trade barriers? Are trade barriers effective? As part of this question, also answer what might be the advantages and disadvantages of a US company moving the manufacturing of a product, such as sneakers, into the United States?

Answer 1

Ans- Advantages of trade barriers:-

1)Increased Consumption of Local Goods-Duty tax increases the overall cost of imported goods and services. When a government levies this tax on imports, it aims to discourage local consumers from importing. As a result, the consumption of locally-produced goods increases since there are fewer substitute or alternative goods.

2)Increased Domestic Employment-As the consumption of local goods increases, so does the demand. To satisfy the growing consumer demand, domestic producers have to produce more products.

3)Enlarged National Revenue-Levying tariffs on imported goods and services is a strategy governments can use to increase national revenue. The duty from importers goes directly to the government’s revenue collection agency.

Disadvantages of trade barriers:-

1) High cost- Trade barriers result in higher costs for both customers and companies. As a manufacturer or distributor, you may need to pay more for the goods required to run your business smoothly.

2) Limited consumer sovereignty- With free trade, customers have access to more products than ever before including high-end goods that were not otherwise available in their region. Imposing trade barriers has the opposite effect. Now, the increase in import costs translates into a limited choice of products.

3) Monopoly power- Free trade promotes competition among different countries, which forces local companies to keep product prices at a reasonable level. Trade barriers have the opposite effect. They increase monopoly power and limit competition allowing producers to charge higher prices. Additionally, limiting the competition leads to inflation, causing a decline in customer spending power.

Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency. Trade barriers, such as taxes on food imports or subsidies for farmers in developed economies, lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.

The increased popularity of U.S. manufacturing will have a tremendous impact on both consumers and producers.

The dispute over increased industrial production in the US has several dividing points. Opponents believe that manufacturing in the US will increase prices, force workers to learn a whole new set of skills and decrease the variety of goods offered .