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

Countries create barriers to trade to protect the interest of the domestic producers and consumers. When an economy becomes an exporter, the domestic producers benefit and the domestic consumers lose from the trade. This happens because producers are paid better in the international market and this leads to a rise in the domestic equilibrium price, leading the domestic consumers to be worse off. And when an economy becomes an importer of goods, the consumers are better off and the producers are worse off as the equilibrium price comes down.

International trade has more benefits than negative effects. So the economy should work to minimise the negative effects by providing various training and upskill programmes and make the workers more efficient. Proper unemployment insurance should be provided.

I agree with the concept of trade barriers to some extent as it is important to protect the domestic interest. However i don't support it fully as trade leads to rapid economic growth and makes goods available to people with low income. The benefits of international trades are enormous.