Trade barriers and its Effects

Trade barriers and its Effects

Trade barriers are strategies taken by economic players in international trade to achieve trade and economic goals. Trade barriers vary greatly, including tariffs and non-tariff barriers (Baggs, 2002).  Countries today are forced to adapt to new strategies to control the imports and exports in their countries. Trade barriers, however, can have positive and negative effects on the economy for a country.

Reasons for Imposing Trade Barriers

Countries impose trade barriers for economic, social, environmental, and political reasons. Protectionism is used for economic reasons such as control of trade balance, protecting jobs, and economic growth. Countries engage in exporting and importing goods and services to meet the needs of its citizens. However, when a country imports more than it can export, a trade deficit which increases the national debt, and it can grow to levels where other countries can refuse to trade with others because of the large trade debts. To ensure there is a balance of trade operations. Trade barriers protect jobs by ensuring local companies’ growth, thus providing job vacancies for its population. The citizens of countries are encouraged to consume locally produced goods to promote local industries (Baggs, 2002). However, when a state cannot convince its population to consume homemade commodities, the government can impose trade barriers forcing residents to consume locally produced goods.

Protectionism supports innovation by improving the systems of a country. A country finds a way of solving its problems when it cannot import some services and goods, forcing the citizens, companies, and the government to invent approaches to solve its problems. Innovation can include equipment or methods.

Trade barriers can be achieved to achieve environmental goals. Importation can result in dumping or market flooding with cheap and low-quality services and goods. This can result in environmental pollution, which can be costly compared to benefits from the imports. For example, African countries import second-hand clothes that cannot last for more than a year. In the end, these countries have a problem with disposing of worn-out clothes because of the large quantities. It results in environmental pollution, which can be caused by burning the clothes or dumping them directly in the environment, which pollutes soils and water and can cause injuries or death to animals.

International trade barriers can be used to achieve political advantage. For example, a country with monopoly power over given resources can decline to export its products to another country to force the buyer into conforming to specific terms. For example, the EU imposed trade barriers on Russia because of Russia’s nature to impose EU members’ trade restrictions.

Trade Barriers’ Effects On Trade Balance

Trade barriers such as tariffs can affect trade balance positively and negatively for a country.  The reason is that exports and imports directly impact the trade balance of a country. Thus, when a country imposes trade barriers that restrict importation, it affects trade balance by reducing the trade deficit, ensuring a balance in imports and export, or an increase in trade surplus. A country can benefit from the foreign exchange by providing that it sells more than they buy from the outside. Trade barriers, such as a reduction in taxes and increased government subsidies (Anderson, 2004). A country can benefit more when it establishes a trade barrier and apply growth stimulus to the economy, boosting exports.

Trade Barriers Effects on Employment.

Protectionism can be implemented to protect employment and employment factors, such as wages. A country can impose trade barriers to minimize imported quantities and encourage local manufacturing. As a result, resident companies are forced to increase production and grow the factors of production. Companies are forced to increase labor by hiring more staff. It reduces employment rates. The decline in employment rate causes the companies to increase employee benefits such as remuneration, insurances, and paid vacations to attract employees. Thus, the wages of the company grow, which improves the living standards of the people.

Trade barriers are meant to stimulate economic growth. The economy of a country is circular as several factors of the economy are dependent on each other. A company can restrict imports or stimulate economic growth by offering subsidies and tax reductions (Anderson, 2004).  When a country imposes trade barriers, local manufacturers are forced to increase their production to meet the demand.  To increase the supply, the local firms need capital in money, human resources, materials, and technology.  Thus, the company’s demand for these resources creates job and innovation opportunities. An increase in employment opportunities increases the resident’s income and growth of new businesses. Employees benefit by earning an income while new companies that supply the resources benefit by earning a profit. The government benefits by earning increased taxes from the income of the people and the companies. Increased income results in an increase in consumption by people and companies. Increased household consumption prompts companies to produce more. It creates an economic cycle that is dependent on people, firms, and government. An increase in production and consumption results in increased growth evident by infrastructural development, expansion of manufacturing output, increased consumptions, increased government revenue, technology assimilation, and innovation.

Application of Trade Barriers in US

Arguments for Erecting Trade Barriers for the US

The US can erect trade barriers to protects its industries from excessive imports, which are cheap, thus negatively impacting the US industries. For example, the US can impose trade barriers such as tariffs on Asian made car models to protect the American automotive industry that is aging. Alternatively, the US federal and state government can provide subsidies to local car making companies to ensure that they can minimize production cost to compete with the imported cars from Asia (Anderson, 2004). The aim of these barriers for the US is to protect its firms from cheap imports.

The united states should erect trade barriers because of environmental concerns. Environmental economics is one of the major concerns for the United States. For example, the US government has a responsibility to protect its environment. Cheap imports of goods can cause the dumping of cheap goods that cannot be recycled, such as clothes, cars, plastic materials, or overused cars, causing pollution (Peters, 2017). US government can impose barriers on the importation of goods that can have detrimental environmental effects.

The US can impose trade barriers also to stop dampening cheap products and services, which can hinder economic growth and other economic factors such as employment. For example, suppose the US government allows the importation of cheap labor and low-quality labor. In that case, it will impact the working population by lowering the wages because labor is readily available.  Although it might increase production in the short run, it can cause employment challenges, in the long run, hindering the production process and economic growth.

The US can impose trade barriers to a given country to reduce the trade deficit. For example, the US has a huge trade deficit against China. The US has taken a strict measure of increasing trade barriers against China to reduce the trade deficit’s accrual. Thus, the US can use trade barriers to control the balance of payments.

Arguments Against Trade Barriers

The US has to consider the negative impact the trade barriers can have on its economy. Trade barriers on the particular producer and consumer goods can result from increases in the cost of locally produced goods, thus increasing the production cost for manufacturers and low consumption rates, resulting in a general decline in economic growth. Trade barriers for the US can increase the monopoly and oligopoly powers of some corporations in the US; for example, let’s say that there are only one or two major players in the US automobile industry, such as Ford or General Motors. If the US imposed importation of cars, it could result in the creation of higher monopoly or oligopoly power, which can negatively impact consumers. Trade barriers for the US result in limited product offerings in the market (Peters, 2017). Imports increase customers’ choices, and trade barriers limit the available alternatives, leading to an increase in the value of the available goods.

Protectionism today has both positive and negative implications on an economy.  Trade barriers, when well utilized, can have economic, political, and environmental benefits. Countries use trade barriers to benefit local companies and protect local jobs. As a result, it ignites economic growth. However, trade barriers can create market-related challenges, such as an increase in the goods and services’ market values. It can result in monopoly power for large corporations and government parastatals.

References

Anderson, K. (2004). Subsidies and trade barriers.

Baggs, J. J. (2002). Trade barriers, international business, and the environment (Doctoral dissertation, University of British Columbia).

Peters, M. E. (2017). Trading barriers: immigration and the remaking of globalization. Princeton University Press.