* Why might a country in an early stage of economic and technical development want to limit importation of goods from more developed countries?…
What are the three main reasons governments prefer using a tariff to restrict imports versus quotas?…
Tariffs are taxes on imports or goods into a country or region. This is one of the oldest forms of government involvement in trading activities. Tariffs are implemented for two clear economic purposes. They provide revenue for the government and they improve economic returns for firms and suppliers of domestic industries that face competition from foreign imports. This protection comes at an economic cost to consumers who pay higher prices for imported goods and to the economy as a whole through the unproductive allocation of resources to the import competing domestic industry. Therefore, "since 1948, when average tariffs on manufactured goods exceeded 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of negotiations under the General Agreement on Tariffs Trade (GATT)." (Carbaugh, 2000) When coupled with other barriers to trade they have often constituted formidable barriers to market access from foreign producers. Tariffs, that are set high enough, can block all trade and act just like import bans. Non-Tariff Barriers (NTB) are also a tactics that are used to regulate the amounts of imports. Voluntary export restraint (VER) "allows…
One of the biggest pros of protectionist trade policies is that it provides job security in domestic industries, especially big industries like the automobile industry, which employees hundreds of thousands of Americans. General Motors for example; in having to compete with so many foreign companies that are able to sell cars at a lower cost, forces them to close plants, laying off thousands of people. This not only affects the auto industry, but also businesses that affiliate with them, causing a rippling effect, which in the worst case scenario, can devastate our whole economy.…
There are many methods that a government can provide to protect domestic producers from international trade. The first method of protection is a tariff which is a tax imposed on imported goods. This method has been used by governments to increase the price of imports to allow domestic producers to be able to produce goods and sell it without such high competition. They can increase their supply of goods in the market and also charge a higher price. There is one main effect from this protectionist policy in the global economy and numerous effects on the domestic economy. Since the price of the imported good is higher within the domestic economy, consumers pay higher prices and will be less likely to purchase the imported good. This will lead to lower supplies of imports and less trade within the global economy. As Fig.1 shows, when imports are introduced, the quantity supplies by domestic producers significantly falls however the tariff raises the price of the imports and domestic producers can supply more.…
Tariffs differ from quotas, in that a quota restricts the allowable quantity of an import. For example, the United States has set a quota on sugar imports since the early 1980’s. This allows for domestic producers of sugar to have access to the domestic marketplace (Import Quotas). According to About.com,…
Trade restrictions are often discussed and passed by politicians when there is a need to improve an economic situation of a specific industry.There are some advantages to a trade restriction, which usually only last short term, and disadvantages that will end up occurring long-term. Such restrictions will not only affect the import industry but will end up affecting the export industry as well.…
Mercantilism is a political and economic system that arose in the 17th and 18th centuries. The definition of this system can be explained as economic nationalism for the purpose of building a wealthy and powerful state. It purports that a country 's economic strength is directly related to the maintenance of a positive balance of trade. This theory also claims that a country must export more than it imports. Such a positive balance of trade, according to mercantilist thought, results in a surplus of gold in the practicing country 's treasury. Moreover, one of the key assertions of mercantilism is that national wealth will come through the import and accumulation of gold or other precious metals such as silver.…
Respond to “Unfair” Trade: if one government thinks another nation is not “playing fair”, it will often threaten to play unfairly unless certain concessions are agreed…
* Trade protection mechanisms, Tariffs , Quotas, Voluntary export restriction, Local content requirements, Health/environmental regulations, Government procurement policies…
As the world saw in the 1930s, world trade is a key aspect of economies around the world. Although it is important, it also needs to be regulated in order to protect a nation’s industries from too much foreign competition. Regulating imports can help a nation in many other ways also. Schaffer, Agusti & Earle (2009) explain many reason that it is important for a nation to regulate imports: the taxation of imports will help raise revenue, the country can regulate what is imported and protect domestic production, they can prohibit imports of goods from countries that go against their beliefs, protect natural resources and ban imports that are bad for the environment and keep products up to a certain safety standard. There are also direct and indirect non-tariff barriers to trade. Direct non-tariff barriers to trade include things like embargoes and quotas. Embargos are “either a complete ban on trade with a certain foreign nation or a ban on the sale or transfer of specific products or technology” (Schaffer, Agusti & Earle, 2009 p. 290). Quotas are restrictions…
Tariffs are often created to protect infant industries and developing economies, but are also used by more advanced economies with developed industries. Here are five of the top reasons tariffs are used:…
At that stage of the country’s economic development, the import substituting industries were not efficient enough to compete against imports. And so the government, prodded by interest group lobbying, put up high tariffs and import restrictions to protect local industries. Thus, begun the regime of high and widely dispersed tariffs, which gave protection to local…
When countries decide to impose trade restriction against any country, it ultimately leads to an economic downfall for both countries, because on country does not have the ability to trade with the other, making them unable to sell. This decreases trade, which, in turn, decreases revenue and economic prosperity. Many people wonder why a government would want to do this. One argument is that of the national defense theory. There are many reasons why countries impose trade restrictions, in this case, weaponry for defense is extremely important to United States in any case there is an outbreak of war; therefore it is only fair for them to protect themselves instead of sharing these items with other countries. That way a domestic supply of defense materials would be available if an international crisis ever occurred, the country would then have the things needed to defend itself on hand and would not have to worry about trying to secure what it needed from other countries. Basically, the national defense theory argues how it would not be wise for one country to be completely dependent on other ones for defensive material. It would make the country vulnerable. However, if the government implements trade restrictions that result in a domestic supply of defense weapons, then the trade restrictions make the nation independent and prepared for conflict.…
Tariffs are effectively taxes on importing certain goods, therefore increasing the price of that good and reducing demand. Quotas are a physical limit on the quantity imported of a good, decreasing supply and again causing prices to rise. Embargoes are and outright ban of a certain good thus completely stopping trade of a certain good/country. Subsidies, rather than increasing the price of the traded good, they decrease the price of the domestic good. For example, when the government gives money to domestic farmers, their costs fall resulting in a fall in price and an increase in domestic demand and so reducing the competitiveness of international firms. The effect of tariff barriers can be shown in the…