International Trade Barriers - Essay Example

International trade is said to be the exchange of goods and services between countries across their international borders and aims to foster a world economy that is affected by global events. Through this it allows firms to engage aggressive pricing of their goods and services in increasing customer satisfaction. The global exchange of goods and services results to improve the balance of payments and to reflect significantly in the countrys gross domestic product in situations whereby export is higher than imports.

Due to this free market situation, governments in various countries see it fit to employ international trade barriers to protect local firms. International trade refers to the case whereby the government restrains the flow of foreign goods and services. The most common way which the government imposes these trade barriers is through tariffs and quotas. Tariff is the tax levied on imports by the state to increase the price of goods to the final consumer and consequently also raising revenue for the government. Duties are mostly enforced if domestic producers in liaison with government policymakers to recompense for foreign producers who have unjustly gain the competitive advantage due to low international wages, dumping exercises and even low production cost. Import quotas, on the other hand, is a limit enacted by the government to the number of consumer goods that may be imported into a country and may be either voluntary or legally imposed. Quotas may be established on the criteria of either first come first served or once allowed total quantity is attained no other product will be allowed into the country. Alternatively, the quota may be divided among the foreign producers on a predetermined arrangement. Nontariff barriers also exist whereby the government imposes regulation as to regarding product content or quality such as production method, produce safety among many other criteria.

Benefits of International Trade Barriers

1. Trade barriers increase the price of imported goods and services in comparison to locally produced goods and services. The restrictions tend to protect the local products and their consumers since locally produced products will have a relatively lower price as compared to the imported goods. The government levies the tax on imports to discourage local consumers from consuming foreign products. As a result, local goods consumption increases due to their comparatively lower prices. This is helpful in protecting infant industries in the country, especially in developing nations fend off unfair competition from big foreign companies and see to the growth of the local industries.

2. Trade barriers are helpful in protecting consumers from products the government feels could be harmful to its citizens. When importing cosmetics, medicines or food into the US, it is important first to make sure the importers and producers are registered with the U.S. Food and Drug Administration to ascertain the safety of the commodities before they reach the consumer.

3. Increased domestic employment which comes about as a result of the increase in consumption of local goods, thereby increases consumer demand and to satisfy the ever-growing demand; domestic firms produce more products which should result in the creation of more jobs. This leads to falling in the unemployment levels and the previously unemployed now having an income it leads to improvement in welfare.

4. Trade barriers enhance national security through protection of specific industries that the government seems crucial and strategically important especially those closely linked to national security. Defense industries are frequently viewed as essential for state interest experience high levels of protectionism. A good example is shown by the United States and Western Europe despite being very industrialized are very protective of their defense-aligned companies.

5. Through trade barriers, the government increases revenue collection due to the levy tariffs imposed on imported goods and services. Therefore, taxes here act as a means to discourage importation and at the same time raising revenue for the government.

6. Trade barriers are employed in instances whereby an individual country feels like a trading partner is not playing by the set rules. Thereby the use of trade barrier is seen as a corrective mechanism until the issue is resolved. More often trade barriers are essential in protecting citizens from low-quality products as well as helping in developing stability of growing economies

Disadvantages of International Trade Barriers

1. Trade barriers lead to reduced consumer satisfaction due to the fact import tariffs increase the price of foreign goods relative to local product and also decrease in volume of foreign goods in domestic markets. This leads to a situation whereby at this moment consumer can either choose from local goods or the more expensive option of the foreign goods and in some extreme international products being utterly cut-off like what happened when U.S. in 1962 out a trade embargo on Cuban imports.

2. In severe cases of sour trade relations between countries, as was experienced between the U.S. and Cuba, sharp fall out arises consequently denying both countries the full benefit of international trade.

3. Reduced global growth occurs due to trade barriers doing more harm than good. The World Trade Organization did research and found out most developed countries opt for policies to protect local industries, therefore reducing export opportunities for developing countries. This leads to a situation whereby the developed nations get richer as the developing nations struggle economically. Developing countries have had an imbalance in their trading. As a result, weakening their economies while making them have unfavorable opportunities to advance and compete.

4. Trade barriers levied by the government on raw materials, for instance, earth minerals and agricultural products, resulting in an increased cost of production lead to manufacturers paying more to acquire inputs. Due to this fact, many manufacturers in the economy which in the U.S. as of 2012 were dependent on imported inputs were unable to meet the cost of production that was going up. Small manufacturers thereby may be forced to close down leading to job losses and in the long run, hurting the economy negatively as well as deteriorating the living standards of citizens of a given economy.

Upon the close analysis of the benefits and disadvantages of international trade barriers, the implementation of trade barriers in the short-run may seem positive, but in the long term, trade protectionism only weakens the economy. This is the because of the local industries now devoid of competition see no need to innovate, eventually leading to falling in quality. The products will be of lower quality and more expensive consequently leading to reduced consumer satisfaction. Ultimately continued trade barriers result to lower economic growth levels experienced in a country because eventually to employment levels will start falling thereby increased distress in the welfare of the countrys citizens.

References

Riddick, Floyd M., and Joseph W. Romila. International Trade Barriers. Ed. Elvin Remus Latty. Vol. 11. No. 4. School of Law, Duke Univ., 1946.

CEKREZI, Anila. "International Trade Barriers." International Journal of Interdisciplinary Research SIPARUNTON 1.2 (2012).

Hornok, Cecilia. International Trade Barriers. Diss. Central European University Budapest, Hungary, 2011.

Borchert, Ingo, Batshur Gootiiz, and Aaditya Mattoo. "Policy barriers to international trade in services: evidence from a new database." The World Bank Economic Review 28.1 (2013): 162-188.

Markusen, James R. "The boundaries of multinational enterprises and the theory of international trade." The Journal of Economic Perspectives 9.2 (1995): 169-189.