Question

In a critical essay evaluate trade barriers. Why do countries impose trade barriers? What is the effect of trade barriers on the trade balance, the Employment, and economic growth in your country?

Now choose a country (other than Saudi Arabia) and evaluate the arguments for and against erecting trade barriers in your chosen country

Answer 1

Trade Barriers are government policies which place restrictions on International Trade. Trade Barriers can either make trade more difficult and expensive (tariff barriers) or prevent trade completly (trade embargo).

Examples of Trade Barriers

• Tariff Bariers- These are taxes on certain imports. They raise the price of imported goods making imports less competitive.
• Non-Tariff Barriers - These involve rules and regulations which make trade more difficult. For example, if foreign companies have to adhere to complex manufacturing laws it can be difficult to trade.
• Quotas - A limit placed on the number of imports.
• Volunatry Export Restraint (VER)- Similar to quotas, this is where countries agree to limit the number of imports. This was used by the US for imports of Japanese cars.
• Subsidies - A domestic subsidy from government can give the local firm a competitive advantage.
• Embargo - A complete ban on imports from a certain country. Eg. US embargo with Cuba.

Governments may opt to impose barriers of trade for a multitude of reasons, including the following goals:

• To Protect nascent industries'
• To fortify national defense programs
• To support domestic employment opportunities
• To combat aggressive trade policies
• To protect the environment

Infant Industries

Tariffs are coomonly used to protect early stage domestic companies and industries from International competition. The tariff acts as an incubator that theoretically affords the domestic company in question the ample runaway time it may need to properly nurture, develop, and grow its business into a competitive entity, on the International landscape. This is essential to startups, because statistically speaking, nine out of ten businesses fail to endure past one year.

National Defense

If a prticular segment of the economy provides products that are crtitical to national defense, a government may impose tariffs on international competition to support and secure domestic production. This can happen both during times of peace and during times of peace and during times of conflict.

Domestic Employment

It is common for government economic policies to focus on fostering environments that provide its constituents with robust employment opportunities. If a domestic segment or industry is struggling to compete against international competitors, the government may use tariffs to discourage consumption of domestic goods, in hopes of supporting, associated job growth, especially in the manufacturing sector.

Aggressive Trade Practices

International Competitors may employ aggressive trade tactics such as flooding the market, in an attempt to gain market share and put domestic producers out of business. Governments may use tariffs to mitigate the effects of foreign entities employing unfair tactics.

Environmental Concerns

Governments may use tariffs to diminish consumption of international goods that do not adhere to certain environmental standards.

Trade Barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S businesses and consumers, which results in lower income, reduced employment, and lowere economic output. Measures of trade flows, such as the rrade balance, are accounting identities and should not be misubderstood to be indicators of economic health. Production and exchange-regardless of the balance on the current account-generate wealth. Since the end of World War II, the world has policies moved away from protectionist trade policies toward a rules-based, open trading system. This widespread reduction in trade barriers has contributed to economic prosperity in many ways, including large increases in trade activity and accompanying gains in economic output and income.

Opennes to trade and investment has substantially contributed to U.S grwoth, but the U.S still maintains duties, against several categories of godds. The overall effective rate of these tariffs appears low, but varies widely across categories of goods. Some of the highest duties apply to clothing, apparel, and footwear, some of the lowest apply to aircrafts, spacecrafts, and live animals.

The Trump administration has enacted tariffs on imported solar panels, washing machines, steel and aluminm, plans to impose tariffs on Chinese imports, and is investigating further tariffs on Chinese imports and automobile imports.

Trade makes a nation wealthy, and conversely trade retsrictions make a nation poorer. Trade enalbles nations to specialise in activities in which they have a comparative advantage: in other words, what they can produce at a relatively lower opportunity cost, and trade for what they would otherwise have to produce at a higher opportunity cost. This means nations produce more goods and services for less and exchange those for goods and services from other countries, resulting in higher levels of consumption that would be possible without trade.

Trade clearly results in positive economic outcomes, allowing people in different countries to specialise in what they do best, and then exchange physical goods , services, and financial assets across broders. But there are often misperceptioms about the measurements that economists and policymakers use to track flows of trade.

The Balance-of-payment consists of the current account, which measures the flow of goods and services, and the capital account,which records the flow of finances.

The effects of each tariff will be lower GDP, wages, and employment in the long run. The tariffs will also make the US tax code less progressive because the increased tax burden would fall hardest on lower-and middle-income households. Rather than erect barriers to trade that will have negative economic consequences, policymakers should promote free trade and the economic benefits it brings.