Question

5. You are an employee of a U.S. firm that produces personal computers in Thailand and then exports them to the U.S. and other countries for sale. The personal computers were originally produced in Thailand to take advantage of relatively low labor costs and a skilled workforce. Other possible locations considered at the time were Malaysia and Honk Kong. The U.S. government decides to impose punitive 100% ad valorem tariffs on imports of computers from Thailand to punish the country for administrative trade barriers that restrict U.S. exports to Thailand. How should your firm respond? What does this tell you about the use of targeted trade barriers? Your answer should be no less than 300 words.

Answer 1

The firm should, in this case, have two option to respond firstly give a thought to export to Canada or another intermediary nation, and let the market go from there and secondly finding another country where the products can be manufactured in with similar cost and by doing so tariffs can be avoided. Hence such targeted trade barriers can often be easily avoided without having to locate production facilities in an expensive country like the U.S.Typically when such restrictions are being placed, businesses will end-run government restrictions; in this case, exporting the computers to another place or another intermediary that would then export to the U.S will be better.

Trade barriers are said as laws, regulations, policies, or practices that are being developed by the government either to shield domestic products from foreign competition or unnaturally stimulate exports of particular domestic products.  The most common foreign trade barriers that are being implemented are government-forced measures and programs that regulate, intercept, or obstruct the international exchange of goods and services. trade barriers are generally of three types Tariffs, Non-Tariffs, and Quotas. Sometimes these targeted tariffs lead to trade wars. The above case is of trade barrier of tariffs. Here the taxes are being imposed by the government on import of goods and services when the tariff increase the goods imported is being sold on higher prices to recover cost which impacts its market as people will tend to buy another alternative with low price and same quality. This hits the manufacturer's profit.

Tariffs are also of two types one is Specific tariffs and other is Ad valorem tariffs. Targeted tariff barriers are of different forms like Import policies such as tariffs, quantitative restrictions, import licensing, and customs barriers, etc., Service barriers that regulate international data flow and foreign data processing, Investment barriers, etc.