Question

Tariffs, the oldest trade barrier, have many effects on the domestic economy or, even at times, on other nations. Please discuss some of those and voice your opinions as to the pros and cons of inhibiting trade through barriers.

Answer 1

Even though, trade barriers are like a burden, ultimately, it will helps in the economic development of a country by facilitating less importing. In the case of international goods or services, government will charge some measures. There are four types of trade barriers and they are Tariffs, Non-tariffs, Import Quotes and Voluntary Export Restraints.

Tariff is the most important measures for the barrier to trade, which means tax imposed on exports. Usually, Tariff will increase the price of imported goods relative to domestic goods.

Pros

• Low Foreign Wages

In the case of domestic production, wages are paid to labor as well as taxes will be paid to government. In the case of foreign production, low wages are paid to the workers. because foreign imports leads to comparative advantage.

• Domestic Employment

Foreign imports compete with domestic products. As wages paid to foreign labor is very lower than domestic production, people tends to buy foreign imported items. It results in rise in the volume of unemployment.

• National security

Foreign import restriction and more domestic production are made available through trade barriers. Firms which produce necessary output for national security are protected by trade barriers.

Cons

• Increases the import prices for consumers.
• Decreases the response of other countries. As tariff protects the domestic production of a country, other countries will increase the tariffs for similar kind of their products which will consequently leads to a fall in economy,
• It forces a compromise between both workers and consumers.