Question

• In a critical essay, evaluate trade barriers. Why do countries impose trade barriers? What is the effect of trade barriers on the trade balance, the employment, and the economic growth?

  Now choose a country (other than Saudi Arabia) and evaluate the arguments for and against erecting trade barriers in your chosen country.

Thank you in advance for not copying other's answers. << Very important

Thank you in advance for not copying other's answers. << Very important

Answer 1

The three major barriers to international trade are natural barriers, such as distance and language; tariff barriers, or taxes on imported goods; and nontariff barriers. The nontariff barriers to trade include import quotas, embargoes, buy-national regulations, and exchange controls.A barrier to trade is a government-imposed restraint on the flow of international goods or services.Both tariffs and subsidies raise the price of foreign goods relative to domestic goods, which reduces imports.Trade barriers are government policies which place restrictions on international trade. Trade barriers can either make trade more difficult and expensive (tariff barriers) or prevent trade completely (e.g. trade embargo).Generally, governments impose barriers to protect domestic industry or to “punish” a trading partner. Trade barriers, such as taxes on food imports or subsidies for farmers in developed economies, lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.Trade barriers generally favor rich countries because these countries tend to set international trade policies and standards. Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, which can be explained by the theory of comparative advantage.Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.Advantages to trade protectionism include the possibility of a better balance of trade and the protection of emerging domestic industries. Disadvantages include a lack of economic efficiency and lack of choice for consumers. Countries also have to worry about retaliation from other countries.Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.The effects of each tariff will be lower GDP, wages, and employment in the long run.Trade barriers cause a limited choice of products and, therefore, would force customers to pay higher prices and accept inferior quality. Trade barriers generally favor rich countries because these countries tend to set international trade policies and standards.Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.Trade and Wages. Even if trade does not reduce the number of jobs, it could affect wages.Workers in industries that are confronted by competition from imported products may find that demand for their labor decreases and shifts back to the left, so that their wages decline with a rise in international trade.Trade barriers can limit their ability to export products, leading to loss of revenue and decreased profit. Trade barriers affect economic growth in developing countries, which are unable to export goods because of high tariffs, thus limiting their ability to prosper and expand their operations.Employment responses to trade are consistently found to be larger than wage responses to trade. increased product market competition translates into increased labour market competition and eroding union-non- union wage differentials. Trade Barriers. Barriers to free trade such as tariffs (taxes on imported goods) and quotas (restrictions on the quantity of foreign goods that can be imported) can affect the exchange rate. Increasing trade barriers cause a country's currency to appreciate in the long run.In the simplest terms, a trade deficit occurs when a country imports more than it exports. A trade deficit is neither inherently entirely good or bad. A trade deficit can be a sign of a strong economy and, under certain conditions, can lead to stronger economic growth for the deficit-running country in the future.Over the past two decades there has been a global movement by countries to integrate their economies with the world economy. Among developing nations, inwardly-oriented development policies and the accompanying baggage of protectionist measures are now seen as an impediment rather than an aid towards growth; this has led to reforms such as reductions in trade barriers and capital market liberalization. Liberalization has occurred in developed countries as well, most notably in the form of multilateral negotiations such as the General Agreement on Tariffs and Trade (GATT) and bilateral or regional free trade agreements such as those in North America and Europe. Although these latter developments mean that trade in both industrial and developing countries has tended to become more regionalized, these arrangements have nonetheless helped to lock in the strong tendency of trade liberalization and integration of previously closed economies into the world economy.India has steadily increased export duties on iron ore and its derivatives. This includes export duty of 30 percent, ad valorem export duty on iron ore pellets of five percent, an export duty on iron ore containing less than 58 percent iron of 10 percent, and an export duty on chromium ore of 30 percent ad valorem. In recent years certain Indian states and stakeholders have increasingly pressed the central government to ban exports of iron ore. To improve availability of iron ore for the local steel producers, the GOI in March 2016 enhanced and unified the rate of export duty for all types of iron ore (other than pellets) at 20 percent; earlier a 15 percent export tax was applicable on lumps and 5 percent on fines. India’s export duties impact international markets for raw materials used in steel production. In addition to the steel-related export duties, India’s March 2017 budget also imposed a 15 percent duty on exports of aluminum ores, including laterite. India has also maintained, since February 2012, a 30 percent ad valorem duty on exports of chromium ore.RCEP is a proposed Free Trade Agreement (FTA) between ten ASEAN member states and their six FTA partners namely India, Australia, China, Japan, New Zealand and South Korea.It can boost India’s inward and outward foreign direct investment, particularly export-oriented FDI.It would also facilitate India’s MSMEs to effectively integrate into the regional value and supply chains.It presents a decisive platform for India which could enhance strategic and economic status in the Asia-Pacific region and can complement its Act East Policy.It can augment India’s existing free trade agreements with the Association of South-East Asian Nations (ASEAN).It can address challenges emanating from implementation concerns vis-à-vis overlapping agreements of ASEAN(Noodle Bowl).The RCEP would help India streamline the rules and regulations of doing trade, which will reduce trade costs.India enjoys a comparative advantage in the services sector such as information and communication technology, healthcare, and education services etc. Thus, RCEP will create opportunities for Indian companies to access new markets.Tariff elimination due to RCEP could worsen the trade deficit, at $105.2 billion in 2018-19.Since import duties are also a source of revenue for India, it could experience a disproportionate loss of customs revenue.Sensitive List: Most of the RCEP countries have very high tariffs on certain products sensitive to them, such as rice, footwear, dairy products and honey, which they can continue to shield through the sensitive lists.Services Sector: India has demanded that the ASEAN countries should open up their services sector so that Indian professionals and workers can have easier entry into their market.However, ASEAN countries are very sensitive about protecting this sector and have not offered much liberalisation even within the bloc to each-other.Almost every sector registered its apprehension that once the RCEP agreement was in place, China would harm the domestic market with its cheap exports and would also dump its products.China already has a $70 billion (approx.) trade surplus with India.Agriculture: It threatens farm livelihoods, autonomy over seeds and also endangers the country’s self-sufficient dairy sector.Reasons Governments Are For Trade Barriers(in indian prospective)

To protect domestic jobs from “cheap” labor abroad.

To improve a trade deficit.

To protect “infant industries”

Protection from “dumping”

To earn more revenue.

that's why india did not join RCEP.