Question

Comment on differences between reciprocal trade liberalization vs unilateral liberalization. In particular comment on the effects of tariffs

Answer 1

Solution

A unilateral trade agreement is a treaty / trade rule/principle  that a particular country imposes on the other country without the consent of the other country. In other words,there will not be any scope for negotiations while implementing this treaty.

Example: When the U.S comes out with a new trade agreement to increase the tariff on Imports of India by 10% from the existing 10%. Since this is a unilateral agreement,while making this agreement the U.S will / have not take India's opinion / consent into it's consideration.

A bi-lateral trade agreement is a treaty where there is scope for negotiations between the countries involved in trade to reach a  common point so it will be a win-win situation for all of them.

Ex: If the U.S gets into a reciprocal trade liberalization contract with India where the US lifts the existing tariff on 20 additional Indian imports and India reciprocates by removing tariffs on 15 additional product imports from the U.S .

So,this will act as a booster to the trade between the 2 countries.

The negative sense of the same can be inferred as Reciprocal Trade restrictions - Example (U.S - China Trade War)

So,as a consequence of this situation,both the countries increase their tariffs on imports from each other which would adversely effect the trade volume between them.

Reciprocal trade liberalization involving tariff cuts ( Positive sense) can lead to greater benefits than Unilateral trade liberalization. After all trade is defined as exchange of goods and services between 2 or more countries.Trade is beneficial to all the trading partners.