Question

Both subsidies and tariffs concentrate benefits on some while disbursing their costs on others. Why does this make implementing free trade policies difficult?  

Answer 1

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Abstract

Every country has set its own regulation regarding the subsidies and tariffs. For Example, In India government provides subsidies to exporter in forms of Duty Exemption Scheme on imported raw materials that will be used for Export Product manufacturing.

Tariffs barriers are two type one is tariff barriers and another one is Non-Tariff barriers- This barriers are generally defined as policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both

Tariffs raise the price of imported goods relative to domestic goods (good produced at home).Subsidies make those goods cheaper to produce than in foreign markets. This results in a lower domestic price. Both tariffs and subsidies raise the price of foreign goods relative to domestic goods, which reduces imports

All measures other than normal tariffs namely trade related procedures, regulations, standards, licencing systems and even trade defence measures such as anti-dumping duties etc which have the effect of restricting trade between nations fall in this category.

Some of these measures could be justified under the provisions or the exceptions provided under the various multilateral agreements governing international trade.

On the other hand, certain non tariff measures which cannot be justified under any of these legal provisions are normally termed as non tariff barriers (NTBs).

Such trade barriers are laws or regulations a country enact to protect domestic industries against foreign competition and hence can decrease market opportunities for exports and give unfair competitive advantages to products from other countries

Some of the most prominent ways of application of these barriers result from prohibitions, conditions, or specific market requirements, government laws etc. that make importation or exportation of products difficult and/or costly.

In the following ways tariff and subsidies make it difficult to implement free trade policies

Barriers to trade are often called “protection” because their stated purpose is to shield or advance particular industries or segments of an economy.

1)  Tariffs raise the price of imported goods relative to domestic goods (good produced at home).

2) Subsidies make those goods cheaper to produce than in foreign markets. This results in a lower domestic price.

3) Both tariffs and subsidies raise the price of foreign goods relative to domestic goods, which reduces imports.

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