Question

what downsides might Brazil experience by implementing quotas, tariffs, and measures to devalue its currency?

Answer 1

Answer: Recent wave of protectionism across the globe can be view as the countrie's doubts over globalization and benefits. Countries use some form of quotas, tariffs to reduce the demand for imports. It is common to perceive that globalization is always beneficial for each country involve in the trade. So, lets analyze the possible downsides that Brazil might experience by implementing quotas. Quotas are the form of trade restriction imposed by importing country. Government of importing country use this restriction due to mongering pressure comes from opposition political parties, industries those have low demand and high cost of production for their product. Although, it benefits the producers of economy but also left out some losers in the form of consumers of domestic economies that pay higher market rate in compare to world market. Therefore, any such step taken by Brazil will have an adverse effect on its demand side of market. Tariff is tax imposed by government of importing economy to reduce the import. Both quotas and tariff are different tools with the same purpose. In case, of tariff government earns some tax revenue, which can be use for redistribution of income to losers from gainer. Any such increase in tariff rate will lead to the higher cost for domestic consumer again it will affect negatively on demand side. Now, people have to pay higher taxes. Sometime, tariff rate may induce the firms to leave the market forever if tariff are so high and too frequent. Any such increase in tariff by Brazil may end into the Trade war with its trading partners. Brazil may face the same increase in tariff's rate by other trading partners so overall trading cost will go up. Then this might lead to the unnecessary loss for both countries. Currency Devaluation given all these policies it is easy to check that Brazil is facing a high trade deficit. Currency devolution is always a cheaper and good tactic so export of country can be increase. It makes countries' output cheaper for foreign consumer so demand for our product is increased. However, it is not always the case that it would help you to fill the gap between country's export and import. Sharp devaluation may result into the high inflation. Brazil has to pay its large debt. Even, small devaluation would lead shoot up in its debt. Possible investors may pull out from the Brazilian market if they highly rely on the government debt. All the consumers of Brazil who has to finance from abroad, will face a sharp increase in the debt. Frequent devaluation may cut the incentive force of economics so in the long run people may get into the unproductive jobs.