Should Trade Barriers Between Nations Be Eliminated?

Introduction

Trade barriers refer to the measures and policies that public authorities implement with the objective of controlling imports and exports to protect goods and services that are produced locally as well as regulating their quality on the market. They also tend to affect both the free flow of international trade and investments. Consequently, the measures adopted may either take the form of legislation or economic strategies. Examples of economic strategies employed to impose trade barriers include tariffs, customs procedure, quotas, embargos, and technical standards that are set primarily to control the quality of import. As much as trade barriers are imposed to protect the local industries and its products and services within a country, they limit a country from the benefits of globalization. Thus, trade barriers between nations should be eliminated as they tend to create a hindrance to the free flow of international trading as well as to foreign direct investment of the nations.

After the end of the World War II, the US set up the policies that support the elimination of trade barriers such as quotas, tariffs, and subventions that were adopted as protective measures. Over the years, the US has been emphasizing on the aspect of trade liberalization conventions by going into negotiation treaties with numerous countries around the world. Lately, the US and other nations have started to discuss the Free Trade Agreements (FTAs), which are considered to be feasible solutions that can help the nations in eliminating trade barriers. Particularly, FTAs provide the stipulated guidelines, which guarantee the achievements in its primary objective of creating a free trade area around the world regardless of the problems that have slowed down the steps. However, the proponents seem to oppose this initiative of establishing a free trade global environment by arguing that this will divert the world from multilateral negotiations. Moreover, it will lead to the revival of trading blocs that once existed among the super power nations such as the United States, Japan, and the European nations. For this reason, specific rules, consideration, and tactics have been placed alongside the economic arguments in knowing whether the pursuit of FTAs should be developed and implemented.

 

Additionally, the proponents for trade barriers believe that quotas, tariffs and embargos will successfully protect the local industries and products from the unfair competition brought by foreign companies. Furthermore, they admit that once the importation of some foreign superior goods is banned, it will provide a chance for local industries to grow as the level of competition will be minimal. However, this idea can be successful, but not for every country as the policy is not applicable with a developed nation because of high cost of production. In other words, trade barriers tend to offer more harm than good for the less developed nations as they usually have a low capitalism to manage the cost production. To solve this issue, the developing country ought to be in the frontline of eliminating trade barriers to boost its foreign direct investment as well as introduce modern technologies to its economy. This concept relates to Adam Smith’s understanding of international cooperation and trading among the nations, which Smith states that:

It is the axiom of every particular master of a domestic, never to try to make at homegrown what it will cost him more to make than to buy. If an overseas country can fund us with a product cheaper than we can brand it, better purchase it of them with some portion of the yield of our trade, hired in a means which we have some benefit.

Smith’s concept implies that, there are the benefits from increased amount of goods that are exported and imported. In his turn, Berdell admits that “without trade each nation can make everything necessary they need”. When trading, each country can concentrate its abilities on what it does better than other countries and exchange commodities that it cannot produce. When nations adopt this approach, the cumulative global output will increase. The economy of the countries benefits from free trading in several ways. For instance, free trading tends to increase the supply of varieties of goods for the local consumers and buyers. Additionally, the market forces will ensure that all nations that have adopted the free trade policies share the profits from the increased output. If a country chooses to stick with trade barriers policies, this will only help to protect the local industries from foreign companies’ exploitation. On the other hand, it will create a network of inefficient industries that can easily collapse due to lack of advancements. Instead, local industries will be able to benchmark on the entrepreneurial and technological learning to boost their productivity when free trade policies are allowed.

Another argument presented by the proponents for trade barriers is that protection policies tend to save some employment opportunities to the local citizens. They based their argument on an example, whereby an American firm was protected from a foreign labor competition giving a job preference to the locals ahead of the foreign expertise. The protection was also aimed at guarding the local products from the competitive products of superior quality. On the contrary, the efforts to protect industries from foreign competition induce the reciprocal actions in other nations, therefore, limiting countries to international markets. In this case, exporting countries have to pay the price for protecting their import-competing industries.

In addition, protection distracts the efforts into rent-seeking. It is argued that protection measures are established by political stakeholders in production schemes to clients frequently in manners that are not connected to quantifiable losses from trading performances. This prompts the owners and entrepreneurs to focus their dynamism and petition on those who make the decision to acquire administrative concerns that benefits their business interest. Hence, nations are advised to practice trading without barriers as well as setting low tariffs protections on imports equally to all organizations across the board.

Protection can be administered for economic reasons or other grounds such as consideration of equity, objectives of national security, and the protection of vulnerable groups to minimize the risks rated as unacceptable and to defend specific interest groups because of political calculation. As a matter of fact, no nation truly practices an absolute free trade. To some extent, all governments put some barriers to the movement of goods and services in and out of the borders. They have some genuine reasons for supporting trade barriers within their country. The walls help in protecting the infant industry. It is one of the most traditional excuses and is mostly used by developing countries. They claim that they have many industries with the great potential to be transformed into the global business. However, at the moment they yet to recognize the cost advantages from economies of scale. They enlarge their market share, train their labors and study how to produce through the most cost-efficient method. They require a temporary protection from low-cost abroad producers until they can contest on equal footing. As a result, they put tariffs, making the foreign goods artificially expensive. Local farmers can now raise the cost of their products and hence enabling them to enjoy the profits.

There is also an argument that barriers protect job opportunities. At any given point, there will be some countries which will decline. Usually, this cooperation has reached the stage of maturation but still not efficient. In 2002, George Bush imposed the 8-30 percent steel tariffs after the pressure from industry leaders and increased the number of still mills that was under administration. If no further action was taken, it seemed that structural employment would have risen even more. There were several industries related to steel industry, and so the bankruptcy of mills was seen to have a negative spill on others.

Many developing nations argue that it is quite difficult to earn sufficient returns from the income and establishment taxes. They claim that the rate of unemployment is usually high, and there are very few large firms within. They, therefore, impose the tariffs on foreign goods to raise the necessary revenue. However, not all developing countries have the freedom to impose taxes. Many of Sub-Saharan countries have the considerable comparative advantage in the sector of agriculture and production of minerals like gold and copper. They tend to practice strict structural adjustment policies (SAP).

Some governments admit that trade barrier enables security of the nation. Moreover, they confess not to have the comparative advantage in goods production so protectionist measures must be implemented to ensure they survive. Nowadays, agriculture industries are important especially in the time of crisis when they are quickly eliminated. In Japan, very high preventive shares and tariffs are put on rice. They protect the farmers so that they can grow different crops and products to feed the Japanese people during hard times. The same reason shares the US by protecting their steel industry so that the latter can produce enough tanks and munitions during an intercontinental skirmish.

Conclusion

Concisely, nations should consider eliminating trade barriers to encourage a free international mode of trading as well as encouraging foreign direct investments to boost their respective economy. Trading without restrictive measures allows the countries to exchange various kinds of products as well as production ideas. Additionally, when the barriers are eliminated, foreign investors are encouraged to set up firms in developing countries, and this ends up with boosting these countries’ economy. As much as the proponents of trade barriers argue that it helps to protect the more victimized nation from an exploitation and unhealthy competition, still it offers more harm than good to them. For the world to achieve a balanced economic development, every nation should be included in the trading process and other progressive economic planning.

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Jun 26, 2020 in Economics
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