Political Institutions, Tariffs and Trade Policies - Essay Example

Topic: POLITICAL ECONOMY Historically, the United s of America had the responsibility of dictating the rates of tariffs on goods brought to the country. The tariffs played a key role because it was among one of the main contributors of the government revenues. The congresses participated in serious debates in order to harmonize the rates of tariffs as it favored traders from a particular religion. The head of state was also assigned the responsibility of coming up with trade agreements and policies with other trading partners using his political influence. However, there were two landmark legislations that revolutionized the laws that guided trade in the United States of America. In 1930 the Smoot-Hawley act was enacted to prevent U.S owners of factors of production from being threatened by the Great Depression at the time. The rates were set high to cushion them from incurring losses. On the other hand, the trading partners responded promptly by taking similar measures a move which worsened the economic condition that was prevailing. The congress was forced to act very fast in order to control the situation that was deteriorating and consequently the Reciprocal Trade Agreement Act was implemented in 1934.The act gave the president the powers allow for tariffs that met the thresholds that had been agreed jointly by the trading partners (Cooper, 2014,pgs 2-3). Political institutions play a major role in coming up with trade tariffs and trade policies. Their main purpose is to protect the interests of traders from being exploited by their trading partners. When they participate in coming up with the tariffs such as having bilateral and multilateral agreements, a lot of opportunities are opened up for the citizens of the country and businesses operate in an efficient manner. The decisions made in coming up with these trade tariffs and policies has political consequences for the government in power because producers are most likely to support regimes that come up with policies that favor them. On the other hand, producers are likely to disregard regimes that come up with unfavorable policies according to them because they seem to be undermining their operations (World Trade Report, 2007, Pg 55). The Great Depression in the 1930s forced the U.S to review its trade policies and tariffs. The country was forced to bend low the trade barriers so as to forge economic cooperation with other countries. Trade became liberalized although the move was seen to have some political agenda. The U.S congress was adamant to give the president freedom to be involved in discussions regarding trade tariffs between countries. The congress also advocated for free trade amid stiff criticism which brought a lot of challenges in the implementation process. America was forced to use trade sanctions against countries that failed to support the new tariffs and trade policies that were being proposed. The U.S continued with its course of supporting trade liberalization although it was facing numerous hurdles. The political goodwill seemed to be lacking but the U.S was not willing to let the process hit a dead end. Initially, the U.S did not support trade liberalization because it wanted to safeguard the economic milestones the country had made. Liberalization of trade meant that the country was in a position to share its technology with other countries an act which could have empowered the countries economically. Alexander Hamilton who was a very powerful leader supported the use of trade policies that denied other countries an opportunity to gain from the U.S well-established economy. During the Second World War, counties had lost the economic gains they had made and needed external support to recover economic state. The United States of America played a vital role in helping the countries reconstruct their economy. Other countries interpreted that the U.S only wanted to gain political milestone. (US embassy, Paras 1-6). President Bill Clinton introduced a number of requirements in trade policy. He noted that it was important that countries abide by the labor laws and that foreign trade did not affect the environment. These two factors have the potential of making foreign trade more expensive. Canada and Mexico were the first casualty of the new requirements that was aimed at ensuring that free trade did not compromise labor laws and environmental regulations (U.S.embassy,Para 15). Technology also contributed to the development of new tariff rates and the development of trade policies. The industrial revolution in Europe contributed to the development of effective and efficient methods of production. Production costs were greatly reduced and the resulting effect was a decrease in price of goods and services. Countries were therefore forced to review their multilateral system of trading. The construction of a railway transport system reduced the cost of transporting goods from one country to another. The quantity of goods supplied increased significantly and the market for goods and services expanded. Technology led to the growth of foreign trade and the laws that governed the trade were forced to be evaluated so as to adjust them according to the issues that were trending in the market (World Trade Report, 2007,pg 35). In the United Kingdom, political leaders signed agreements to allow bilateral trade. The United Kingdom was enjoying technological supremacy specifically in the textile industry. The political situation was stable and encouraged the participation of the country in foreign trade. Business with other trading partners was thriving due to the political stability and support of political leaders in drafting trade policies. Other countries were forced to follow suit and adjust their trade barriers because of the success the United Kingdom had achieved. U.K had become the largest importer in Europe due to its lenient trade barriers and received the admiration of other countries (World Trade Report, 2007, pg.36). The First World War and the Second World War changed the way countries conducted their business activities. Trade was hampered by the war because countries became unwilling to share their resources with partners they dimmed as their enemies. High tariff rates were set, the amount of goods imported or exported was controlled and many other barriers were laid. The difference between countries was clearly brought out in a conference that had been organized to seek for a solution for foreign trade. Britain, Italy and France remained adamant to change their stance on Germany. President Wilson of the United States of America took a different approach on the matter and supported for the abolishment of trade barriers for countries to cooperate economically. He recognized the need for countries to work together to achieve economic prosperity since no country could achieve the goal without depending on another. Due war resulted to change of boundaries and gave rise to new trade partners. These new trade partners came up with their new trade tariffs and trade policies so as to position themselves strategically in foreign trade. The disintegration of Hapsburg Austria gave birth to six new markets which had their independent tariffs and trade policies. Other countries such as Germany were unfortunate to dispossess some of their key trading commodities given that they had lost some of their provinces which produced important outputs (World Trade Report, 2007, Pg 39).A favorable geographical location also played a significant role in coming up with trade agreements and trade policies between Mexico, Canada and the United States of America. The taxes levied on Mexican products reduced a margin of more than 8 percent, whereas the taxes levied on Mexican products by the U.S reduced from 4 percent to 0.46 percent. The agreements were very important to the United States of America because it gave the authorities an assurance that products and services of America were protected overseas (US. Embassy, Para 23). Political institutions play a vital role in coming up with tariffs and trade policies. Countries have unique political institutions which are responsible in coming up with the trade policies which vary form country to country. The structure of governments is very instrumental in influencing the types of tariffs and trade policies countries adopt (Milner, 1999, Pgs 101-103). Works cited Cooper, William. Trade Promotion Authority (TPA) and the Role of Congress in Trade Policy.2014 Print. Web. 18.11.2014.2 Milner, Helen. The Political Economy of International Trade. Columbia University.1999.Print. Web. 18.11.2014. The US. Embassy. Foreign Trade and Global Economic Policies. Web. 14.11.2014 World Trade Report. The Economics and Political Economy of International Trade and Cooperation.2007.Print. Web 18.11.2014. Read More