Barriers to International Trade - Assignment Example

International trade has money potential benefits for participating countries, yet governments regularly impose barriers to trade. By using real-life example, discuss the benefits of international trade and the reasons why restrictions are imposed. INTRODUCTION Since the world was created, resources were scattered all over its features. Upon the division and conquest of land by man, followed by industrialization, it became impossible for any one economy to provide everything for its people. This resulted in trade between nations. This is the only and most logical solution to the problem, “What I can’t produce, I take from the other in return for what the other wants from me”. (Trebilcock & Howse, 2005) DEFINITION International trade is basically defined as the exchange of goods and services across a country’s international borders. Any good or service that a country exchanges with any other country in return for something of its own interest represents international trade. (United States International Trade, 1980) IMPORTANCE OF INTERNATIONAL TRADE In most countries international trade is vital for their very survival. This is because the most part of their economy depends on their GDP. The Gross Domestic Product is the total exchange of goods in the economy of the country. It includes all imports. Compared to GNP, the Gross National Product, which includes goods and services produced locally only, the GDP proves to be more important for many economies suffering from lack of vital resources. This is the reason that the share of international trade has been on the rise since the past centuries. (Nelson, 2000) International trade also plays a very important role in the spread of the ever growing globalization. It promotes the country’s potential in the form of the product being floated in the international market and if it is appreciated by the world, everyone wants that particular generic good from that country because that county is the best at producing it. A prime example of this is German cars. Even though they might cost a little more than their rivals, but their performance and build quality are far beyond the dreams of any other automobile producer. This has given the German economy a characteristic. They are excellent engineers. This means that if we see any technical and highly engineered product in the market which is made in Germany, we will be reassured that it will definitely be the best in its class. We will not think twice before buying it as a result. Same is the case with Italian food. We know that Italians make exquisite meals. So, should we feel to eat out, we will be drawn towards Italian restaurants. ADVANTAGES OF INTERNATIONAL TRADE Friendship Between Nations This is obviously very obvious. But at the same time, its also very important. Trading with a country’s neighbors especially strengthens relationships between the two nations. This can come handy in times of instability of the country and especially in times of war. It’s just like having a friend beside you at all times. Whenever you need help, he is always beside you. In 2005, China, the upcoming superpower, announced its new foreign policy with the rest of the world. It stated that China is aiming to make peaceful relations and friendship with the rest of the world. It planned first to start with its neighboring countries and then diffuse outward to the rest of the world. in the month of April alone, the Chinese leaders went to 6 countries and extended the hand of friendship and good, strong ties. More than that, it has maintained a good relationship with the 10 member ASEAN making it China’s fourth largest trading partner giving it a trade volume of US$105.8 billion in 2004. China and the EU have also announced a collaborative partnership in 2003 which grew trade more than 74 times compared to the past three decades giving an output of US$ 177.3 billion in 2004 and making the EU China’s largest trading partner. (Jianmin, 2005) Knowledge of Goods and Geographic Proximity There are many products which are not advertised and marketed properly which results in them becoming a strain on the company with most of the profits going to them to sustain them. In many cases, products which are not selling well in your country may prove to be invaluable to another country. For the consumers of another country, this might just be the very thing they wanted to make their life easier or more colourful. The best example of this is the world’s cheapest car launched early in 2008 by Tata Motors, an Indian firm. This car is expected to cost only 1200 pounds. This is a milestone in automotive history. If this car is allowed to be traded internationally, it will bring about a massive convenience in personalized transportation as almost everyone will be able to afford a car. This is definitely going to be a step up. To continue in its progressing path, a few days back, Tata Motors has also bought the British car maker, Jaguar and intends to turn the company’s miserable history into a glorious one. Transfer of Technology Keeping up with the rest of the world is hard. It is even harder if your country doesn’t allow international trade even though your economy is not self sustainable. Trading electronic goods is vital in the progress of a country which is on the path of development. There is no need for any engineer or business man if he is not able to use his time efficiently and properly or makes errors in his calculations because he did not have the proper equipment available in the market to purchase. There are horizontal and vertical technology transfers. Horizontal transfer deals with the transfer of technology from one organization to another organization in another country and is put on the same job. Vertical transfer deals with the technology transfer from their research and development stages to their application stages in another country in agriculture and industry development. (Armengol, 2004) Progress with Lack of Resources A population which can afford luxuries but which lives in a country which has scarce resources, means that they cannot be expected to produce everything themselves. This is where international trade helps them maintain a good standard of living because they are able to buy the best product out of the whole variety in the world market. Living Standards and Medical Facilities Naturally if a nation is able to exchange luxurious goods from neighboring countries, it means that the population of that country will be provided with an improved standard of living. State of the art medical facilities can be procured and made use of to provide better treatment and care of the population. It also means that death and infant mortality rates can be greatly reduced making the position of the country in the international market more stable and secure. RESTRICTIONS IMPOSED BY COUNTRIES ON INTERNATIONAL TRADE Even though there are many advantages of international trade, countries impose certain restrictions on international goods so that their own economy is not completely abandoned and their locally produced products are kept in the market. These techniques are called trade protection acts. Tariff / Duty This is a form of tax imposed on imported goods. When a good arrives to the local market, a custom inspector examines it thoroughly and uses a tariff formula unique to each country and imposes the tax on the good. The good cannot be unloaded until the tax is paid. This is why this is the easiest tax to collect. Import Quota This is also a system specifically designed to restrict imports. This basically imposes a physical restriction on the quantity of a good which can be imported in a specified time. This is completely unfair to consumers as it often forces them to buy products from the local economy which are usually not good value. It also leads to smuggling and corruption. (Fatemi, 1989) Export Restrictions EVR is the form of restriction levied to control exports. This is levied in the case where a popular product is being exported so heavily that there is nothing left for the local market to purchase. This creates an unfair condition for local consumers. A prime example is that of Cambodia, Indonesia, Kazakhstan, Russia, Argentina, Ukraine and Thailand who have restricted their food exports to increase their local food supply. This has in turn made their farmers highly demotivated because they think they are being exploited and are being underpaid. They are being forced to grow the wrong crops at the wrong time just because of government restrictions. CONCLUSION There is no doubt that international trade is a huge step forward in globalization. Hence it has many advantages for consumers globally. But, politics and selfishness of countries makes this a hard deal to be regularly practiced by most middle class consumers. Countries thoroughly control the material coming in and going out of its borders to make sure their local economies remain stable and strong. WORKS CITED 1. United States International Trade (1980) International Trade Administration, U.S. Department of Commerce. By United States. Dept. of Commerce, International Trade Administration 2. M. J. Trebilcock, Robert Howse (2005) The Regulation of International Trade. Routledge 3. United Nations (2002) Manual on Statistics of International Trade in Services. IMF 4. Carl A. Nelson (2000) Import/Export: how to get started in international trade. Thomson Learning 5. Loren Yager (2006) International Trade: Issues and Effects of Implementing the Continued dumping and subsidy offset. DIANE publishing 6. Maria-Angels Oliva I Armengol, Luis Rivera-Batiz, Maria-Angels Oliva (2004) International Trade: Theory, Strategies, and Evidence. OUP 7. Khosrow Fatemi (1989) International Trade: Existing Problems and Prospective Solutions. Taylor and Francis 8. Michael Landeck (1994) International Trade: Regional and Global Issues. St. Martins Press 9. Loren Yager, Randolph C. Hite, Sigurd R. Nilsen (2005) International Trade: Current Government Data Provide Limited Insight into offshoring of services. DIANE publishing 10. The Economist (2008) Cereal offenders. Retrieved April 2, 2008, from web site http://www.economist.co.uk/finance/displaystory.cfm?story_id=10926502 11. Li Jianmin (2005) China Seeks to Make Friends with All World. retrieved from web site http://www.chinese-embassy.org.uk/eng/zt/Features/t214558.htm Read More