Free international trade has been advocated for by many economists as it elevates consumers demand margins by increasing the number of commodities at their disposal while at the same time reducing the cost of these goods, all thanks to increased competition (Bown, Crowley, Staiger, Kyle and Robert pp. 3-108). However, a majority of states have imposed barriers to free trade to protect domestic employment, shield infant industries from unnecessary competition, and protect consumers from harmful products among other reasons. Tariffs, taxes imposed on import goods, are one of the many techniques used to limit free trade.
Trade barriers and tariffs have had their good and bad days alike. These barriers have proved to be pro-producer and anti-consumer in a way that, domestic industries have benefited due to inflated import prices making them stand a better chance at competing against them. The government also realizes increased revenue through tariffs. However, consumers, both businesses, and individuals have to literary pay the price for these trade barriers as the overall cost of the goods become high due to the taxes. With domestic industries shielded from outside competition, they don't have to reduce the price of their commodities and consumers end up paying higher costs as a result. Trade barriers are detrimental as they minimize efficiencies by giving chances to the survival of companies that would not exist in stiff healthy competition.
The economy at large has felt the pinch caused by trade restrictions, the imposer economy and the imposed alike. In many cases, well-developed countries call the shots and come up with trade policies resulting in the application of tariffs and other barriers on agricultural consumer products. Developing countries are therefore limited to move these products to their intended markets leading to overproduction and dumping, forcing them to lower their prices (Bown, Crowley, Staiger, Kyle and Robert, 3-108). This doesn't present a fair and square way of economy-wide competition. Some economies opt to protect specific import-competing industries making them allocate and exhaust their limited resources on these industries while under-allocating and overlooking other sectors producing unprotected trade commodities. In the long run, these countries realize a decrease in their exports while busy minimizing imports by shielding specific industries.
With an economy-wide trade comes the free movement of services and cheap labor. In the early 1990s, the US entered into an agreement with Mexico on reduced tariffs, and quotas and American employers made a rush to the Mexican comparatively low waged labor. Many anticipated high levels of unemployment due to the unceasing flow of labor but surprisingly the rate of unemployment decelerated from 10% in spring 2008 to 5.5% in spring 2015. However, industries felt the effect of these trends as those with comparative advantage would attract workers from those with comparative disadvantage (Zaki 120). Trade barriers, therefore, act as a tool for protecting domestic employment.
The government involves itself in trade restriction in two dimensions, protection, and retaliation. Application of tariffs, quotas and other forms of restriction guarantee consumer and citizen's security in some ways:
- Employment protection-These restrictions protect employment opportunities by regulating the number of personnel crossing borders to seek jobs in the host country. The cheap labor so often tempting to employers and if their hand land on them, it could jeopardize the job security of the citizens.
- Protection of infant and vital industries- the government, regulates the free movement of import goods with the aim of shielding young growing industries from the competition that these goods will bring (Zaki 131). Some domestic sectors like the agricultural sectors need protection from foreign substitute or similar products for them to secure the market within their countries.
- Strategic trade policy- with the aversely dynamic world of technology, a modernized industry, whose kind is rare worldwide, could be established in a country. This firm would require protection from the government as an oligopoly for it to compete favorably with others internationally.
In some instances, the government may lift off some of the restrictions on individual import commodities as a form of product promotion. The Chinese government, for example, reduced its tariffs on whiskey brand by 10% to encourage its citizens to consume that product (Bown, Crowley, Staiger, Kyle, and Robert, pp. 3-108). On the hand, the government's indulgence in illuminating competition for its industries doesn't do well to their productivity and efficiency. They are not in high gear to better their commodities to sell out more as a result of reduced competition. The government exhausts its scarce resources to support these industries. Consumers are therefore denied quality products at affordable prices. Trade restrictions as a result of retaliation ruin mutual understanding and cohesion between two nations.
Trade barriers are a necessary evil (Joshua 103). As much as a government would wish for the free inward and outward movement of goods and services, it has to put its economy and citizens first. However, they should allow their industries to take some punches by lowering the tariffs and quotas and pave the way for a healthy competition. Business should not be mixed with politics and the private sectors should granted a chance to make their own financial decisions. Some governments have embraced regional free trade whereby an instance of the East African region, Kenya, Uganda, and Tanzania conduct their businesses with very minimal restrictions. All one needs is a passport.
Bhagwati, J. "Dawn of a New System." Finance and Development 50 (4). December 2013.
Bown, C. P.; Crowley, M. A. (2016). Staiger, Kyle Bagwell, and Robert W., ed. Handbook of Commercial Policy. 1, Part A. North-Holland. Pp. 3-108.
Joshua Paul Meltzer, Asia and the pacific policy studies (2015) 90-102
Zaki, C. 2014. "An empirical assessment of the trade facilitation initiative: econometric evidence and global economic effects." In World Trade Review 13 (1): 103-131.
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