The Concept of Free Trade and Restriction on Both Import and Export Products and Services - Example

Running head: Export and Import sector Name Course name Professors’ name DateIntroduction There are a thousand advantages that accrue when Americans participates in trading their goods, services and capital items across the borders with minimum government interferences. A free enterprise opens up access to best and least expensive goods and services which various countries are willing to offer into the market. Subsequently, Americans can sell to the most enterprising market and further choose available investment prospects. Free trade which describes globalization exposes a country, specifically America, to pool of capital available across nations. Numerous studies indicate that higher level of growth and development is realized through an open economy contrary to a closed system. Unilateral trade liberalization that evades preconditions is therefore very effective for an economy looking forward to earn more incomes from trade during this globalization phase. Thesis statement: both import and export market for tires and other consumer goods should be liberalized instead of imposing restrictions. Political view of protectionism Evidence indicates that concentrated and ordered recipient of protectionism possess power compared with disorganized and diffused recipients of liberalized trade. Normally, politicians respond to the loudest interest groups thus views imports as unfavorable to an economy. This misconception perpetuates a position that negotiation and reciprocity are principle factors for an effective trade. Such inclination means that an optimal trade agreement is one that maximizes US access to foreign market whilst minimizing foreign access to US market. An inclination that cuts on tariffs would yield substantial benefits to consumers may not pass political masters unless there is a proof to demonstrated large export benefits. Although tariffs in United States are relatively low, they are high on common consumer goods like foods, clothing, shoes and other basic necessities consequently taking a large portion of incomes earned by poor majority. A research by Gresser (27) vividly illustrates how a hotel maid who earns an average $15000 in a year pays more in tariffs when compared to a manager in the same hotel. The contentious issues was that a manager spends small portion of his huge income to pay tariffs while the maid earning meager salary spend a better proportion of the salary paying the same tax. Free trade in this context ensures that prices are relatively low, while range of choices is expanded and that goods and services are of good quality. In this global world, phenomenon of exclusive nationality is outmaneuvered as countries rush to grab advantages of global division labor, intra-industry trade, and sophisticated production techniques like Just In time. These conditions of globalization favor firms that respond promptly to the new circumstances. Openness to trade and investment will determine whether a country will capitalize on new situation in global market. One of the avenues to open up market for both consumer and producer goods is bilateral and regional agreements on imports and exports. This will encourage integration of industries across the borders accordingly rewarding both political and economic reforms in a country. Multilateral trade agreement further expands trade and prevents protectionism measures. Duties on Chinese tires likely to bring more harm In a study by Ikenson (159), China – US relationship has been cold since the onset of financial crisis and global, economic slowdown. Bans on pork, poultry and several antidumping measures placed on China did not spoil relationship with US. Nevertheless, there is a possibility of a sore rapport as President Obama is expected to make a decision concerning duty imposition of 55% on automobile tire imports from China. The decision is consequential on trade policies and the kind of administration led by President Obama. It further has an impact on international trade relations since America had made a pledge to avoid protectionist’s procedures. In essence, the purpose of section 201 trade acts of 1974 was meant to safeguard American producers from injurious competitors but it has to change with changing time. Duties imposed on tires from China leads to a greater production in other developing competitive countries and not United States. It is economically sensible to outsource production of low cost tires to China in a global world but if the cost of production is raised through imposition of trade restrictions, US production would not be attractive. Additional 55 % duties would lead to diversion of jobs from China to Indonesia, Mexico or Brazil. In a deliberation by Ikenson (160), average unit price of an imported tire from China was $38.98 in 2008. If a duty of 55% is imposed, the price would surge to $60.42. On the other hand, the prices of tires in Mexico, Brazil and Indonesia are $56.26, $48.93 and $32.10 respectively. Countries will therefore turn to these nations whose costs of producing tire are low. There is far much negative economic impact of the proposed duties on tire production. According to economist Prusa (par.2), manufacturing industries were likely to experience minimal or no job creation due to proposed tariff. Prusa explicitly demonstrates how a dozen jobs were to be lost for every job protected. This converts to 25,000 U.S jobs lost yearly when the tariff is put into effect. Higher prices and other inefficiencies emanating from new tariffs would cost the consumer about $600 million in a year for each job protected in the tire industry. There are also safety measures in relation to replacement of tires. Due to high prices, consumers will forgo replacing their old tires thus posing a new risk of accidents while on the roads. On a higher scale, adoption of the protectionism measure by President Obama is a wanton violation of commitment made by G20 and it would undermine US credibility on trade. Other countries will also be forced to adopt own protection measures as a result put world trade at the verge of collapse and open way to trade disputes. Trade policy for the 21st century economy Globalization has greatly influenced procedures followed when conducting business in agriculture, manufacturing and service industries. Reconstruction of past dilapidated economies has expanded pool of labor and paved way to a much more diversified and stratified distribution of labor. This has created a specialization process where countries divert its resources to sectors which it has comparative advantage. On the contrary, politics of United States still remain rooted on perception that countries are antagonist. At the moment, it is not a must that headquarters and production facilities are situated in one country. In this case, a global economy does not differentiate nationality of producers since the business is collaborative. One of the most important factors to think about is kind of economic activities pursued in United States and Diaspora. Competition for talent and investment characterizes modern economies. It is essential therefore to open up foreign input that would attract competitive talent and investment. Customs and procedures that oversee transfer of goods and services across the borders of United States must be predictable, open and with less friction. In terms of policy framework, Congress should pass free trade agreement with Colombia, Panama and South Korea that will help bring back US credibility. Duty free or low duty access to import of tire and other products while also providing US manufactures with brand new export opportunities will go along in sustaining markets in the United States. Secondly, trade promotion authority ought to be reauthorized so as to signal the world that US has recovered from self doubt and now ready to exercise openness. Ikenson, (621) in his economic deliberation states that ‘‘the effect of this step is that prospective trade partners are likely to negotiate and conclude trade agreements following a reason that the deal would not be unduly delayed in the congress.’’ It is important to note that when trade promotion expired in 2007, WTO negotiations subsequently collapsed in the succeeding year. The third critical element reflecting on export market is the agricultural policy which is a persistent source of pain for international market relations. Subsidized American agricultural produce kills markets for developing nations which exports such products and also discourage those who are advocating for an open market abroad. In the same vein, congress have a role of ensuring that cost of physical goods moving across borders, cost of compliance with customs, and both transportation and logistic costs do not become a burden to importers and exporters. This implies that congress should oversee customs and Border Protection to make certain that cargo security mandate is not suppressing trade facilitation role. Improvement of administrative and physical procedures involved in international movement of goods and services is more effective than exercising new cuts on international tariffs. In relation to this statement, World Bank estimated that reducing the span of time spent in clearance will increase more trade by an approximate value of $30 billion (Ikenson, 163). Although there are imperfections with WTO, the organization has served well the interest of United States. In reciprocation, Congress should display obligation to international trade rules by observing recommendations made by WTO. If US expect its trade partners to adhere to the rules, then it should be in the lead executing all trade activities while strictly complying with WTO’s rules of play. On another scale, congress is supposed to consider revising its antidumping law and bring it to conformity with findings of WTO. Antidumping law is a mark of past industrial era where it was meant to serve the interest few producers. Although antidumping is skewed on fair trade and level playing field, it is not reasonable to punish those who have done nothing wrong apart from being competitive in trade. Moreover, globalization of supply chain renders antidumping policies absurd and out of context. Trade debate is always been characterized by exaggeration and fear. In the new world order, this has to be replaced by honest and fact driven discussion about trade. Congress therefore has to desist from objective trade analysis in a situation that it does not serve a specific hypothesis. The Miscellaneous Tariff Bill of 2010 In an article by Griswold (par.3), US manufacturing enhancement act was passed in July 2010 with an objective to unilaterally suspend duties of hundreds of imported goods which serve special interest to the US manufacturing companies. Manufacturing Enhancement Act marked the beginning of trade liberalization and subsequently offers a blueprint for future trade policy. The past three decades saw enactment of Miscellaneous Tariff Bill granting temporary relief to US manufacturing companies and other producers. Elimination of tariffs on goods made in United States has the benefit of cutting down on inefficient production thus diverting assets and labor for more productive use. Congress should consider suspending permanently all tariffs especially the controversial import and export duty so that it would not have to renew them yearly. Such a step leads to gains in production and consumption due to efficiency in trade. On a higher note, congress may affix provisions to current tariffs which will enhance systematic re-examination for any situation that may damage business carried out by American consumers, producers and manufactures. Regulation done in US In United States both regulated and free economies exist. Regulation is only done on special distributions such as guns and ammunitions in which an individual must abide by rules and regulations of that State. Another illustration of a governmental control is a deficient economy which can be rejuvenated by adjusting taxes, adding credits for the yearly tax returns, and controlling use of credits or otherwise production of many job opportunities so as to boost economic activities. Another kind of regulation is when the society is experiencing an expansion in price of common consumer good like electricity. It becomes the responsibility of government to prevent consumers from exploitation by selfish companies reaping massive profits. Real estate industry in United States contributes the biggest part of the economy. Government regulations are set that even though a person can affix price on their home, potential buyers can compare that price with other prices and reach a common point. In times of economic slowdown, real estate boosts the market by introducing low interest rates that would help the market get back to its productive status. Sally (5) addressed how classical Economist Alex Smith believed in people’s ability to create own ideas then grant patents, copy rights which would go along in enhancing creativity and economic growth. Alex Smith argued that if people are left to do what they want, integrated transport network would be built consequently enhancing trade between cities and even regions. Furthermore, Smith maintained that people who are left to attend college at any place in the world brings with them changes desired. These early thoughts by classical economist have contributed a lot to perpetuation of free trade in modern society. The website Facebook was created by a person who carried on his activities without any external control. This invention has benefited the society in terms of social networking. Microsoft CEO is considered a success factor when it comes to free market and the economy of United States. Free market was a critical element during industrial revolution and it is now coming to limelight in this information age where the use of internet is of immense importance. With new innovative software product in the market, some critics believe that Microsoft should have their prices regulated simply because no other person can manufacture the same product. A communist or rather a government regulating economic activities can hinder a person’s ability in inventing or reaching self-realization. A situation where a person is not able to take advantage of opportunities and utilize everything within their reach to create a new and better life is unjust. Effects of trade barriers Faiola (par.1) observed that 17 out of 20 countries that vowed against protectionist measures have since failed in keeping their promise with countries like Russia, United States and China enacting measures that limits flow of imported goods and services across nations. This information was contained in a World Bank report unveiled on 17th march 2009. The report is pessimistic about efficiency in the market as nations rush to institute protective measures against their ailing industries during the global economic slump. World Bank report came into scrutiny as Mexico imposed restriction on 30 US products. Mexico’s move was retaliation against US move to cancel Mexican truck drivers from transporting across United States ground. This sets an unpleasant pattern for other nations. World Bank group President commented on protectionist stating that it was responsible for deepening and prolonging great depression observed in the past. Barriers recently executed by nations take various forms. Ecuador for example took a direct approach where it raised tariffs on about 600 items. Argentina also assumed a step of putting licensing requirement on textiles, toys and shoes thus creating another kind of bureaucracy for international exporters. EU on the other hand announced new export subsidies on milk products while China and India increased tax refund for local exporters which in real terms makes those products cheaper in international market. Faiola (par.4) vividly explains how some measures taken by countries can distort global production of items like vehicles, and trucks. In response to global financial crisis, many developed countries channeled more funds in terms of bailout plans. This regulation measure was likely to prevent industries from adjusting naturally to forces of demand and supply. Presence of a regulation alters equilibrium position and may lead to surplus production. All the same, stringent trade laws in place today make it hard for nations to assume measures which could lead to trade wars like the one of 1930s. Conclusion This essay provided an in-depth analysis on the concept of free trade and restriction on both import and export products and services. Although politician can rage against free trade and globalization, the truth is that it has raised economies of many states to a new level of economic blossom. Due to globalization, plane and car manufacturing companies can draw inputs or parts from different countries in the world. This has therefore forced countries to exercise restrain when imposing any barrier to trade. The essay focused on recommendation made by United States International Trade Commission proposing a 55 % tariff on tire. The US president may be tempted to offer lower duties or quota but the cost of such an action may be detrimental to United States and other countries around the world. The proposal should be rejected all together and attention focused on moving forward trade agenda that guarantees American freedom to participate in global marketing. Read More