Trade Restrictions - Essay Example

Trade Restrictions Name Professor’s Name Course Date Trade restrictions refer to the artificial restrictions imposed on products between certain countries. To many, it is considered protectionism because such restrictions are intended to protect customers from harmful and sub standard goods. Trade barriers on the other side are restrictions induced by the government to counter international trade. Barriers may be in various forms ranging from tariffs to non-tariff barriers for example, export licenses, subsidies, import licenses, voluntary export restraints, currency devaluation, local content requirements, embargoes, trade restrictions and import quotas. Almost all the trade restrictions apply under the same working principle: the application of certain trade costs that increase the price of goods and services to be traded. In the event that two countries use trade barriers repeatedly against one another, then it results to a trade war. There are many reasons as to why different governments and countries apply trade restrictions, they may vary from country to country, but they fall under political, social and economic realms. I bet it can unanimously be agreed that economic ignorance is one of the dumbest reasons for governments to come up with trade limits. States have no basis whatsoever, to impose trade restrictions with the application of any scapegoat of not knowing basic economic principles. Policies, rules and other factors that govern, and influence the existence and application of any trade barriers must be well known. That some countries apply trade restrictions because they do not understand or the public does not even want to know such undertakings. This has been made possible because, a good number in the public domain lack the understanding of the possible consequences arising from trade restrictions. However, this cannot be justified and agreed by any serious citizens and business people. It is not worth whatsoever (Muhlbache, Dahringer and Helmuth, 1999). Most governments impose trade restrictions in order to protect infant and growing industries. These newly established firms have no substantial standing. Infant organizations require government supervision, security and protection from global competition during their later developmental stages until they are adequately competitive globally. Core industries that deal with the production of important pillars of the economy of any give country, agriculture and mining sectors being examples, must be fully protected against externalities. This is important as the enterprise or firm needs time and growth to have the knowledge needed to be more innovative which in turn helps to be a significantly competitive force in the relevant existing market (Krugan and Obstfeld, 1999). Trade restrictions are put in place if any society maintains a desire to drive its economy to a particular direction that demands there be equitable allocation of resource such as information. In countries where income inequalities, economic disparities and social inequalities are high, there is an urgent requirement that these states consider equity first. Such desires can be achieved through the provision of education and extension by means of an information highway. The said government assembles the price and is in charge for any distribution (Louis, 2003). Governments also need to have maximum control of the competitive behaviors that arise because of liberalization. When behaviors that do not support healthy competitions sets in, monopoly that means only one organization controls the whole market, only one institution or individual has total control over demand for certain goods and services. This happens when individuals or a cartel of intermediaries buys from the producer, and sells to consumers at an added profit margin that tampers with the uniform delivery pricing. Oligopolies, monopolies, and monopolistic competitions are forms of such behaviors that discourage competition. It also achieves this through labeling requirements (Schuknecht, 1992). As apolitical tool, trade tariffs have been applied in establishing certain independent countries. Because of this application, unpopular kinds of tariffs are responsible of eliciting mixed reactions and social unrest in certain countries, Chile being an example. Politically, governments officers tend to reach at trade decisions that favor their political parties. The government will involve in international trade in order to protect jobs. Governments have various important reasons as to why they impose trade sanctions and other laws that restrict trade (Hanson, 2010). Certain countries do this in order to have some influence on other smaller countries. Nations with more large and dominant governments employ trade relations with other smaller countries or nations to gain a certain influence over them. In most cases, these dominant nations are great players in the global trade, and that they tend to be dictatorial in terms of trade control. This motive is considered political and therefore, it is not a good strategy in international relations (Caves, 1982). Imposing subsidies on exports make any government incur serious costs that could have been channeled somewhere else and create many more important programmes that would shift any activities that is uncompetitive, to more efficient form of production. Subsidies on exports and import restrictions make the domestic companies not to become innovative. They are not able to come up with possible measures that will pose challenges to their competitors. Companies under the favor of subsidies show little efforts to encourage management efficiencies, and in the end, they will depend on the government to fund them for survival (Louis, 2003). The concept of strategic government policy concept brings forward the idea that strategic trade policy leads to advanced levels of a country’s income. Companies should realize improved returns and profits when first mover advantages start being evident. This will further aid in cementing their position in the global markets (McEachem, 2011). Countries with personal special interest may also resort to the application of trade restrictions. Although trade barrier and restriction is beneficial to the public at large, it does not mean it satisfies all the sections that exist in an economy (Smith, 2006). Many countries opt to apply trade restrictions because they are short sighted when protecting domestic jobs. In an effort to preserve employment opportunities, this can be a good measure for countries affected to rely. In the near future, employees will secure other employment opportunities hence the economy will be under full employment (Frieden and Lake, 1995). Countries apply these restrictions to respond to nations unequal trade practices. A vast variety of economists agrees to the concept of fair free trade. When a nation seeks to protect its own domestic industries, it establishes sized tariffs and quotas. The Pareto efficiency demands that within the factors that result to international trade restriction, there is a requirement to make available important public goods like national security, communication channels, roads and bridges, social goods, and resources such as public halls and schools (Caves, 1982). Trade restriction has come under strict criticism because of the severe implications it subjects to emerging and developing countries. For example, dumping refers to a situation where manufacturers dispose off their products at a price lower than that is charge in their local markets or their costs of production (Roorbach, 1993). Foreign producers are viewed as main players in the dumping of products in the local /domestic markets. The fact that flourished nations are the determinants of several trade policies, they make it difficult for countries, which are best producers of certain crops to face high trade tariffs. Trade barriers that include taxed food imports and application of subsidies in the developed countries results to surplus production hence dumping in the global markets, therefore, making the prices come down and finally hits the developing nations (Schuknecht, 1992). The benefits that accrue because of trade restrictions are only visible by a small section of the entire public population. On the other hand, the benefits arising from free trade cuts across the entire public population hence are not easy to be seen. Theorists of the neoclassical economic argue that tariffs distort the free markets. That trade tariffs are only beneficial to local manufacturers and the government in place of the consumers. Trade barriers make it not possible to have a variety of products to choose from thus making consumers incur hiked prices of inferior goods (Smith, 2006). In an effort to solve problems related to trade restrictions, three suggestions have been provided to the great twenty countries by the World Bank. These nations may champion for improved aid for the purposes of trade for nations with low income; assume influential roles that will positively shape the global trade and economy when in need; and that they have to show a greater commitment to transparency (Smith, 2006). It best suits the economy of the world when each country participates in each trade with other countries. Global trade between nations spurs the growth of all the entities involved. However such practices are not beneficial to all nations for example, controllers of large supply chains may apply trade restrictions in an effort to change certain terms of trade thereby increasing the quantity of their products they should give up in order to get imports (Krugan and Obstfeld, 1999). Governments may apply trade protectionism in order to protect local employment opportunities from cheap labor overseas. However, salaries and wages in developed nations are higher as a result of output per employee is higher. These salaries and wages show a higher rate of productivity otherwise, there is no advantage; therefore, the employers or entrepreneur should cut on wages and salaries in order to match the level of productivity (Hanson, 2010). Trade tariffs and restrictions render imports expensive and reduce imports demand. However, partners in trade can match the changes and alternatively raise the prices for exports. This effort to counter such trade restrictions does not solve any problem either, suppose goods produced in the local market are not competitive and are of inferior quality. If the export of a given country goes down, the country in question spends little on imports. Taxes are a source of revenue and from taxes of imports (trade tariffs), any nation or government that participates in international trade gains revenue from the application of trade restrictions (McEachem, 2011). An imbalance in trade makes it mandatory for countries and governments to resort to protectionism. People need to get jobs, get good rewards as wages and salaries, and properly participate in trade activities without certain limitations that can be internally solved. An existence of free trade goes a long way in facilitating the achievement of job satisfaction and earning of reasonable wages and salaries. A majority of countries try to balance their trade. If a nation spends a lot of money on importing goods and services and exports, little it facilitates the development of imbalances in trade, causing trade deficits (Louis, 2003). Retaliation is important. This, however, does not mean that restriction imposition requires a counter action of retaliation; it is a subject of debate. Some economists argue that certain countries impose trade restrictions, trade barriers or tariffs in an attempt of retaliation. To create a level playing field and have fair participation in trade, countries are forced to set up similar counter restrictions. Trade restrictions in a certain country moreover usually results to restrictions being imposed on other nations. In the United Kingdom places and increased tariff on vehicles made in Germany for example, Germany may place tariffs on United Kingdom’s goods sold in Germany (Muhlbache, Dahringer and Helmuth, 1999). Consumer protection must always be a top priority for any government that minds the welfare of its people. They are entitled to safe products and clean trade environments that are consumer friendly. Consumers must be protected from consumption of unhealthy or harmful imported products. A country may apply a tariff on goods and services that it may consider a danger to its citizens. For example, Argentina may put a trade restriction in the form of tariffs on goods and services imported from China if it considers the goods are hazardous. Countries may apply standardization measures and even to extreme extents of banning certain imports (Hanson, 2010). In conclusion, almost all the countries do participate in trade restrictions and impose them for three major reasons: economic, social and political. On given circumstances, governments impose restrictions to promote its domestic export affairs and protect their local industries. In addition to that, governments may play a role in shaping the trade activities through restrictions in the event of economic crisis when employees demand from their governments that they do cut on imports when they feel their jobs can be easily compromised. The Pareto efficiency requires that among these reasons, there is the need to provide basic public goods such as national security, roads and bridges, social amenities such as social halls and environmental amenities like clean air. Negative forces of externalities such as pollution reduce productivity. Production externalities come about when the productivity of certain people is influenced by the undertakings of other individuals in the same environment. It is also in the best interest of the government to protect its citizens from the external market forces. Good governments do this in order to change the distribution of income through transfer policies created and implemented by various governments. It does not sound good to hear that a certain country has been restricted in the international trade arena, and it assumes the sitting role. A country may apply trade barriers as a measure of retaliation. Many may disagree, but it is a question of debate. References Caves, E. (1982). Multinational Enterprise and Economic Analysis. Cambridge: Cambridge University Press Frieden, J., Lake, D. (2000) International Political Economy: Perspectives on Global Power and Wealth. London: Routledge Hanson, D. (2010). Limits to free trade: Non-tariff barriers in the European Union, Japan and United States. New York: Edward Elgar Publishing Krugan, P., Obstfeld, M. (1999). International Economics. Longman Louis, A. (2003). International trade: Theory, Strategies, and Evidence. UK: Oxford University Press. McEachem, W. (2011). Economics: A contemporary introduction. New York: Cengage learning. Muhlbache, H., Dahringer, L & Helmuth, L. (1999). International Marketing: A Global Perspective Roorbach, G. (2003). Tariffs and Trade Barriers in Relation to International Trade: Proceedings of the Academy of Political Science. Vol. 15 (2). Schuknecht, L. (1992). Trade Protection in the European Community. Chur: Harwood Academic Publishers Smith, F. (2006). Globalization: Consequences of trade restrictions Retrieved April 23 2013 from Read More