Question

You are the Supreme Leader of your nation and must decide whether to erect trade barriers to protect your most valuable national asset: "Unique-ium.” Several other counties have recently found rich supplies of this formerly rare substance, and now you face fierce competition in the world markets. This could have devastating consequences for the economy of your nation and your position as Supreme Leader. The citizens are pushing for trade barriers in order to protect their jobs and their financial futures! The international community objects that placing tariffs, quotas, or any kind of import/export restrictions on "Unique -ium" is unacceptable protectionism. What do you do and why? Be specific, and weigh the pros and cons of various means of restricting trade and protecting your advantage.

Answer 1

The international community objects that placing tariffs, quotas, or any kind of import/export restrictions on "Unique -ium" is unacceptable protectionism .Therefore, as a supreme leader , i cannot erect trade barriers even though the citizens are pushing for trade barriers. because,"Unique-ium.”is the most valuable national asset. But now several other countries are also rich suppliers of this formely rare substance as a result the country has to face fierce competition in the world market. Removing trade barriers on "Unique-ium" has many advantages. I, as a supreme leader of the nation, would obey the international community objects and would not erect trade barriers due to following reasons:

• Trade is an engine of growth

Trade is always on an engine of growth. Trade plays an important role in accelerating the growth of the economy.it will improve the overall economic condition of the nation.

• Increased competition

With more trade, domestic firms will face more competition from abroad. Therefore, there will be more incentives to cut costs and increase efficiency. It may prevent domestic monopolies from charging too high prices.

• Reducing tariff barriers leads to trade creation

Reducing tariff barriers and other import/export restrictions will create more trade and that will plays a significant role in economic growth of the nation.

• Improves efficiency and innovation

Free trade improves efficiency and innovation. Over time, free trade works with other market processes to shift workers and resources to more productive uses, allowing more efficient industries to thrive. The results are higher wages, investment in such things as infrastructure, and a more dynamic economy that continues to create new jobs and opportunities.

• Protectionism will not create more jobs

Free trade may reduce jobs in inefficient industries, but it frees up resources to create jobs in efficient industries, boosting overall wages and improving living standards. Protectionism, in contrast, attempts to protect jobs that the market will not sustain, at the expense of more innovative industries.

• Technology transfer

Removing restriction on trade may help to transfer technology which can further improve efficiency of our nation and enhance economic growth.

PROS AND CORNS OF VARIOUS MEANS OF RESTRICTING TRADE AND PROTECTING YOUR ADVANTAGE

Trade barrier means restriction on trade and prevent free trade. It means a government imposed restriction on the free international exchange of goods or services.There are different means of restricting trade. They are as follows.

• Tariff
• Quotta
• Import licenses
• Export control / licenses
• Import quotas
• Subsidies
• Voluntary Export Restraints
• Local content requirements
• Embargo
• Currency devaluation
• Trade restriction

• Tariff:

Tariffs are a barrier to international trade. A tariff is a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services. Tariffs are generally introduced as a means of restricting trade from particular countries or reducing the importation of specific types of goods and services.

Advantages of imposing tariff:

• Home produced goods do not incure the tariff and they are likely to be cheaper
• The people who do benefits are home producers and employees
• Home producers gain price advantage
• Reduces imports so improves balance of trade
• Protect domestic infant industriesso they have a chance to flerish before being swamped by cheaper imports
• Aid economic growthof home country
• Raise revenue for government

Disadvantages of impossing tariff:

• unfair competition
• Tariff may increase price for customers
• Other countries may impose their tariff in response to this on their import
• Restrict the volume of trade
• High import price won't put many off

• Quota:

A quota is a limit on the amount of goods that can be imported. Putting a quota on a good creates a shortage, which causes the price of the good to rise and allows domestic producers to raise their prices and to expand their production.

Advantages of quota:

• Protect infant industries
• keep market entry cost low for domestic producers
• Protect strategic industries such as defence and agriculture
• In market environments where imports are on the rise, quotas are more protective than tariffs

Disadvantages of quota:

• When one country uses quotas, its trading partners do the same and cite the same reasons. The end result is less exporting opportunity for all producers and higher prices for all consumers.
• Quotas are also cumbersome for the country using them.
• They require a lot of paperwork indicating exact amounts of products for each country facing a quota
• It is also difficult to measure the precise degree of protection quotas offer.

• Import export licenses:

Some countries require import or export licenses. When domestic importers of foreign goods are required to get licenses, imports can be restricted by not issuing many licenses. Export licenses have been used to restrict trade with certain countries or to keep domestic prices on agricultural products from rising.

Advantages of import export licenses:

• Low financial risk
• low cost- way to assess market potential
• Helps to avoid tariff
• License provides knowledge of local market

Disadvantages of import export licenses:

• Limited market opportunities
• Dependance on license
• Potential conflict with licence
• Posssibility of creating future competitors

• Subsidies:

Another common barrier to trade is a government subsidy to a particular domestic industry. 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.Subsidies can be thought of as tariffs in reverse. Instead of taxing the foreign import, the government gives grants of money to domestic producers to encourage exports. Those who receive such subsidies can use them to pay production costs and can charge less for their goods than foreign producers. A tariff is paid for by the buyers of the foreign goods and the buyers of domestic goods who pay higher prices. But subsidies are paid for by taxpayers who may or may not use the good.

Advantages of subsidies:

• Subsidies make those goods cheaper to produce than in foreign markets
• results in a lower domestic price.
• raise the price of foreign goods relative to domestic goods, which reduces imports

Disadvantages of subsidies:

• this can be easily abused, especially by exporters who exaggerate the prices of their goods so that they receive a larger incentive, eventually raising their profits at the expense of taxpayers.

• Embargo:

An embargo stops exports or imports of a product or group of products to or from another country. Sometimes all trade with a country is stopped, usually for political reasons.

An embargo is a state-sponsored prohibition on the movement of goods between nations. Embargoes amount to economic warfare and in fact are often used during times of war and hostilities. Embargoes are often employed during peacetime when they prohibit commercial trade with individuals, businesses, or specific countries sans military action or the threat of military action. Embargoes are a legal prohibition on commerce. They may be selective or universal in their prohibition of goods and they may embrace both imports to a country and exports from a country.

Advantages of embargo:

• forces the other country to change its ways especially if they are doing something which is ethically wrong or something that hurts one of there main trade partners.
• if this was to happen both countries may have rival industries and this will no longer be a problem because the countries can’t rival against each allowing both industries grow in both countries because they don’t have to compete with each other as directly anymore.
• Protect ships

Disadvantages of embargo:

• The biggest and most major issues with a embargo is once its in place the smaller country will suffer huge losses and this will cause huge amounts of economic problems and most likely collapse
• Smuggling

• Trade restrictions:

A trade restriction is an artificial restriction on the trade of goods and/or services between two or more countries. It is the byproduct of protectionism.Governments restrict foreign trade to protect domestic producers from foreign competition.

Advantages of trade restrictions:

• 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
• 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
• Enhanced National Security
• Enlarged National Revenue
• Improved Consumer Protection

Disadvantages of trade restrictions:

• The increase in import costs translates into a limited choice of products. Small businesses, for instance, might not be able to afford to pay these costs so that they will offer fewer goods. ☆Barriers Result in Higher Costs

• 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

• Trade barriers affect economic growth in developing countries, which are unable to export goods because of high tariffs, thus limiting their ability to prosper and expand their operations. Furthermore, it has a direct impact on wages and international relations.

• Nowadays, many organizations have offices and factories in multiple locations across the world, which allows them to employ locals and pay higher wages compared to the national average