Protectionism in the U.S - Term Paper Example

International Business Introduction An essential shift is taking place in the world economy. We are moving away from a world in which national economies were comparatively independent entities, isolated from each other by barriers to cross-boarder trade and investment; by distance, time zones and language; and by national differences in government regulation, culture and business systems. And we are moving toward a world in which barriers to cross-border trade and investment are tumbling; perceived distance is shrinking due to advances in transportation and telecommunications technology; material culture is starting to look similar the world over; and national economies are merging into an interdependent global economic system. The process by which this is occurring is commonly referred to as globalization. (Hill 2002) Tariffs and Non-Tariff Barriers to Trade The purpose of this paper is to examine tariff and non-tariff policies that control trade between countries. Quiet a number of these policies are now a matter of important disciplines under the 1994 General Agreement on Tariffs Trade agreement that is administered by the World Trade Organization (WTO). Accessibility to an import market may be in a weak position by the tariff barriers, and the non-tariff barriers, of the importing country. The tariff barriers or import restraints look after the domestic manufacturers or producers from foreign competition. Export products usually become less competitive, or uncompetitive, as a result of the barriers. (Tariff Barriers, Non-tariff Barriers, Customs Duty Assessments, Trade Fairs or Exhibitions) Trade Barrier A trade barrier is a general expression that illustrates any government policy or regulation that limits international trade, the barriers can take many forms, including: Import duties Import licenses Export licenses Quotas Tariffs Subsidies (Trade barrier - Wikipedia, the free encyclopedia) Tariffs Tariffs, which are taxes on trade in of supplies into a country or region, are among the oldest forms of government intervention in financial activity. They are implemented for two clear economic purposes. First, they grant revenue for the government. Second, they get better economic returns to firms and suppliers of resources to domestic industry that faces competition from foreign imports. Tariffs are broadly used to protect domestic producers' incomes from foreign competition. This fortification comes at an economic cost to domestic consumers who pay higher prices for import challenging goods and to the economy as a whole through the inefficient allocation of resources to the import competing domestic industry. Therefore, since 1948, when average tariffs on manufactured goods surpasses 30 percent in most developed economies, those economies have sought to reduce tariffs on manufactured goods through several rounds of discussions under the General Agreement on Tariffs Trade. Non Tariff Barriers "Non-tariff barriers include "non-science based sanitary and phytosanitary (SPS) standards, customs procedures, government monopolies and lack of transparency in regulations". (USEU: Article) Some non-tariff trade barriers are mainly acceptable in very partial circumstances, when they are measured necessary to keep health, safety, or sanitation. Non-tariff barriers to trade can be: State subsidies, procurement, trading, and ownership. National regulations on health, safety, employment. Product classification. Quotas. Foreign Exchange: controls and multiplicity. Over elaborate or inadequate infrastructure. 'Buy national' policy. Intellectual property laws (patents and copyrights). Bribery and corruption. Unfair customs procedures. (Non-tariff barriers to trade - Wikipedia, the free encyclopedia) Case Study: Protectionism in the U.S. The United States likes to think itself as a nation committed to unrestricted free trade. In their negotiations with trading partners such as China, the European Union, and Japan, U.S. trade representatives can often be heard claiming that the U.S. economy is an open one with few import tariffs. However, while it is true that tariffs on the importation of goods into the United States are low when compared to those found in many other nations, they still exist. One study concluded that these tariffs cost U.S. consumers about $32 billion per year during the 1980s. A more recent study suggested that in 1996, import protection cost U.S. consumers $223.4 billion in higher prices. Gary Hufbauer and Kim Elliott of the Institute for International Economics undertook the earlier study. They looked at the effect of import tariffs on economic activity in 21 industries with annual sales of $1 billion or more than the U.S. protected most heavily from foreign competition. The industries included apparel, ceramic tiles, luggage and sugar. In most of these industries import tariffs had originally been imposed to protect U.S. firms and employees from the effects of low-cost foreign competitors. The typical reasoning behind the tariffs was that without such protection, U.S. firms in these industries would go out of the business and substantial unemployment would result. So the tariffs were presented as having positive effects of the U.S. economy, not to mention the U.S. Treasury, which benefited from the associated revenues. (Hufbauer & Elliott, 1993) The study found however, that while these import tariffs saved about 200,000 jobs in the protected industries that would otherwise have been lost to foreign competition; they also cost U.S. consumers about $32 billion per year in the form of higher prices. Even when the proceeds from the tariffs that accrued to the U.S. Treasury were added into the equation, to total cost to the nation f this protectionism still amounted to $10.2 billion per year, or over $50,000 per job saved. The two economists argued that these figures understated the tariffs true cost to the nation. They maintain that by making imports less competitive with American-made products, tarrifs allowed domestic producers to charge more than they might otherwise because they did not have to compete with low price imports. By dampening competition, these tariffs removed an incentive for firms in the protected industries to become more efficient, thereby re-trading economic progress. Further, the study's authors noted that if the tariffs had not been imposed some of the $ 32 billion freed up every year would have been spend on other goods and services, and growth in these areas would have created additional jobs, thereby offsetting the loss of 200,000 jobs in the protected industries. In a 1999 study, Howard Wall used a different methodology to proved updated estimates on the impact of protectionism on trade volume and prices. Wall found that while the U.S. imported more than $ 723 billion in merchandise from countries outside of NAFTA in 1996, it would have imported over $111 billion more if it had a policy of pure free trade. Wall concluded that the higher prices resulting from import protection cost U.S. consumers some $ 223.4 billion in 1996, or 3.4 percent of GDP. However, Wall's estimates also suggest that the U.S. suffered from trade barriers in other countries. While the United States exported $ 499 billion of goods in 1996, according to Wall it would have exported an additional $ 130 billion of goods to non-NAFTA countries had those countries not had trade barriers. (Wall, 1999) Bibliography Charles W. L. Hill (2002) International Business, McGraw-Hill/Irwin. EXPERTS DISCUSS NON-TARIFF BARRIERS TO TRADE http://www.un.org/News/Press/docs/2005/tad2030.doc.htm G. Hufbauer & K.A.Elliott (1993) Measuring the Cost of Protectionism in the United States H.J.Wall (1999) Using Gravity Model to Estimate the Cost of Protectionism. Federal Reserve Bank of St. Louis Review. p. 33-40 Non-tariff barriers to trade - Wikipedia, the free encyclopedia (Accessed on 5th April 2006) http://en.wikipedia.org/wiki/Non-tariff_barriers_to_trade Tariff and non-tariff barriers benefit developing countries - new study (Accessed on 5th April 2006) http://www.twnside.org.sg/title/5421a.htm Tariff Barriers, Non-tariff Barriers, Customs Duty Assessments, Trade Fairs or Exhibitions (Accessed on 5th April 2006) http://www.export911.com/e911/export/tariff.htm Trade barrier - Wikipedia, the free encyclopedia (Accessed on 5th April 2006) http://en.wikipedia.org/wiki/Trade_barrier USEU: Article (Accessed on 5th April 2006) http://useu.usmission.gov/Article.aspID=D2D7806E-DA7F-4CBF-AE54-B09CEAA50AEB Read More