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 the economic growth?

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 induced restriction on international trade. Where the domestic countries are not be allowed to do business with other foreign country.

Countries imposed trade barrier for the following reasons :

a) Protection towards Domestic product: if government will not imposed trade barrier then domestic companies will face a huge challenge in front of foreign country. To protect small industry as well as domestic industry trade barrier is require.

b) High priced goods: Due to tariff the price of foreign goods are high.

c) Employment generation : if government will not imposed trade barrier then product will not produced in home country which causes unemployment.

d) Maintained BOP: trade barrier directly helps to maintained BOP of a county otherwise more import will effect negative BOP.

Effect of trade barrier on trade balance:

After trade barrier country can import less goods so they will go for production of the goods instead of import which helps to get trade surplus of the country.

Trade surplus = (Export -import).

Effice of trade barrier on Employment :

When a country will produce the goods by their own that time the employment generation will also increased more people will get job.

Effect of trade barrier on Economic Growth :

When a country will be able to produce his own demand rather to import then automatically the employment generation will increase which casus decrease poverty as well as increase per capita income. Which helps to growth of economy.

Here i choose India for making the argument for and against on trade barrier.

Advantages of trade barrier :

a) Protect Small Scale Industry :

After independence in india in the year 1955 SSI industry formed to promote rural development. Because in rural area people were from agricultural family with low income group. For that government encourage SSI and increased the limit from 5 lakhs to 1 crore.

b) Maintained the price level :

Trade barrier helps to control inflection, otherwise more import will casuse increase the general price level of the goods.

c) Foreign exchange Reserve :

Restriction on imports was necessary as there was a risk of drain of foreign exchange reserve on the import of luxury goods.

Disadvantage of Trade barrier :

a)Affect economic Growth :
Trade Barrier 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.

b) Loss of Revenue :
Due to trade barriers county will unable to export their surplus by which they will unable to get Revenue also.

c) Lack of Choice of customer :

Due to trade barrier potential buyers will be effected because they had very limited choice for their goods.

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