A report on the topic
TRADE BARRIERS- HOW EFFECTIVE?
Date – 14th December 2014
Submitted to: Prof. Abha Rishi
ITO
Submitted By: Pranav Kesari
Sec – C
Roll No. – 13DM131
Trade barriers- how effective?
In this article I will touch upon the following questions?
1. What are trade barriers?
2. Who implements trade barriers?
3. Why are trade barriers implemented?
4. What are types of trade barriers?
5. Who are the beneficiaries of trade barriers?
6. How does it affect the society and economy?
7. What should be the policies for a successful trade barrier implementation in India?
What are trade barriers?
In a very simplistic layman definition the trade barriers can be describes as, restrictions a government; in this case the Indian government;
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A tariff is a tax, and hence the government enjoys greater revenues as imports increase. Domestic industries on the other hand benefit from the reduction in competition, as the tariffs artificially increase the prices of imported products. But unfortunately for consumers – and I mean both, the individual consumers and businesses - higher import prices result in higher prices for goods. For example if the prices of steel in India is inflated due to tariffs, an individual consumers will have to pay more for products like cars which use steel, and automobile manufacturers like Tata will have to pay more for steel to make cars.
How does it affect the society and economy?
The effects of tariffs and trade barriers on any of the stakeholders- businesses, consumers or the government is not a permanent one, it shifts over time. It is evident that in the short run, the higher prices for goods can reduce consumption by individual consumers and by businesses. During this time period, businesses will profit and the government will see an increase in revenue from duties. However, in the long term, businesses will notice a decline in efficiency due to the lack of
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Because of this reason some of the countries see India as a ‘rapid globalizer’ while other countries still see it as a ‘highly protectionist’ economy.
After Independence in 1947 and till the early 1990s, India was a closed economy, with average tariffs exceeding 200 percent, and having extensive quantitative restrictions on imports, foreign investment was under very stringent restrictions. The country began to cautiously reform in the 1990s, liberalizing only under conditions of extreme necessity.
Since that time, trade reforms have produced remarkable results. India’s trade to GDP ratio has increased from 15 percent to 35 percent of GDP between 1990 and 2005, and the economy is now among the fastest growing in the world.
Average non-agricultural tariffs have fallen below 15 percent, quantitative restrictions on imports have been eliminated, and foreign investments norms have been relaxed for a number of
“It increased 900 import tariffs by an average of 40 to 48 percent.” On the face of the Smoot-Hawley tariff, it protected the farmers in US. Rather than helping, with the high-tariff, the food prices must be raised for the Americans in the depression. In the other hand, international trade in capitalism has shrunk dramatically. Also, “The Smoot-Hawley tariff compelled other countries to retaliate with their own tariffs.
For any country that wants to survive in the toughest of times, they need to have good trading capabilities. Very few countries are able to sustain themselves without indulging in intensive trade with other countries. Trading has been considered a good thing in the past, but with the changing world, there are doubts about the benefits of trading. There are some factors that lead to the development of trade networks between countries. When people started to settle in larger towns, the idea that you had to produce absolutely everything for survival, began to fade.
Famous economist, David Blanchflower, argued that this bill became “the most damaging piece of trade legislation in US history.” This tariff was not signed into law until June 17, 1930, with stocks being uplifted from the 1929 height, which makes it known as a backup factor. One of the reasons why 1,028 American Economics was because the tariff would raise the cost of living. With unemployment rising, less people were able to get jobs which made it harder to earn money. Second, was that farms wouldn't be helped because, “Cotton, pork, lard, and what are export crops and sold in the world market”.
Reducing trade restrictions such as imported taxes (known as tariffs) allows for the transfer of goods, services, and investments to be free across national borders. Canada, United States and Mexico already have an agreement through NAFTA (North American Free Trade Agreement). The importance of globalization, however, is free trade throughout the world. Goods, services and investments move freely to find the most competitive environment so that customers and investors benefit. This kind of environment depends on several factors such as labor costs, government regulations like environmental controls on manufacturing, and the value of a nation's currency.
For example, the Fordney-McCumber Tariffs Act was enforced by the U.S department of state to protect businesses in the U.S. According to the Department of State, claims, “The Fordney-McCumber Tariffs Arc raised tariffs above the level set in 1913; it also authorized the president to raise and lower a given tariff rate by 50% to even out foreign and domestic production costs.” This presents the purpose of the enforcement of the Fordney-McCumber Tariffs Act. Another incident that was the cause of tariffs was a decline in every economic value in America, According to the article, Tax foundation, it states, “Historical evidence shows tariffs raise prices and reduce available quantities of good and services for U.S businesses and consumers, which resulted in lower income, reduced employment, and lower economic output.” Also, the Smoot-Hawley Tariff Act worsened the economic problems the U.S was already facing.
These regulations were put in place to preserve domestic trade in products and currency. Making the United States self-sufficient and preventing other countries from utilizing its resources were the objectives. Protectionism persisted throughout the 20th century, but as the nation got increasingly involved in world events, it eventually started to fade. According to the economic theory of mercantilism, trade barriers should be put in place to limit imports because exports boost a country's wealth.
Throughout Canadian history, free trade in particular has changed Canada and it’s economy for the better. The free trade agreement (FTA) signed in 1989, assisted Canada’s economy in many ways, such as removing most of the tariffs on trade goods, increasing trade with the USA, and leading the way to the creation and signing of the North American Free Trade Agreement (NAFTA). All of these boosted Canada’s economy and strengthened the bonds with new and old trade partners. After this agreement was established, it becomes clear very quickly that the FTA was exactly what Canada needed. As well as opened new doors to opportunities for Canada.
One if the greatest advantage is transferring new technology between countries, which is incredibly beneficial for the development of nations. One of the biggest disadvantages is precisely when easy access to incoming technology is not allowed. Take for instance Ecuador, a developing country, which products cannot compete with those from developed countries in terms of quality, advanced technology, know-how, and price. In order to stimulate local consumption and decrease the amount of money transferred abroad, Ecuador’s government has set several policies, which has considerable effect on imports. Some of those policies are: imports quota and tariff safeguards.
There are quite a number of trade restrictions that a government can implement on imported goods in order to protect domestic industry, such as tariffs, quotas, embargo, safety standards regulations, Anti Dumpling, complex custom duties, labeling requirements and quality restrictions. Tariff refers to tax placed on foreign goods which raises the price of the imported goods as it enters the country. This is the most common form of barrier to trade. Through tariff imposed on imported goods, this will lead to an increase in government revenue as well as protection on domestic industry. If the government motive is to increase revenue, then tax usually imposes on imports in which its demand is inelastic, such as cigarette.
Protectionism is coming to us from all directions, and numerous nations are using both direct and indirect barriers to trade, as when they require to do so. What economists mostly talk about are the threats of protectionism, rather than its benefits and how protectionism isn’t a long term solution. By now we have understood that protectionism, whether we like it or not, is used in certain economic situation by every other country, but it shouldn’t be seen as a permanent solution. Protectionism is a superficially convincing concept, because we can immediately point out the number of jobs saved, lesser no of imports etc. but it slightly more difficult to see the benefits of free trade in numbers, but one country’s protectionist policies will not just hurt their trading countries exports.
And also, as a result of international trade, the market contains greater competition with more competitive price and cheaper products. This essay will focus on the definition, advantages and consequences of international trade with considerable theories and evidence. First point I want to emphasize is that international trade is the exchange of goods and services between countries. This is the type of world economy and trade, prices, supply and demand, impact which influences world events. Political change in Asia is inclined to lead to increase labor costs, thus increase the production costs of sneaker companies.
Throughout the twentieth century, countries were creating treaties, trade blocs and global governance institutes to promote open market and free trade. Europe’s golden age of trade with very low tariff and high economic development began mid-19th century and collapsed
At the same time, the world has also become interdependent due to trade relations. Major countries in the world trade with each other so as to ensure maximum productivity. Trade laws have been established through international organizations dictating the extent of trade relations. Imports
The Elephant and the Dragon by Robyn Meredith highlights China’s and India’s industrial growth and worldwide. Meredith describes China’s and India’s history and how both countries went from being poor to worldwide powers. Meredith shows how each of the country’s leaders influenced the fall of the economy and how future leaders led to the rise of economic growth. In each economy Meredith states that the leaders of both countries found themselves with no choice but to change and she describes the inspiration that both countries deprived their ideas from with lead to great change for the government and the people.
There are many different approaches to development in which countries over the years adopted to further develop and grow their economy. Some countries adopted the approach of import substitution in which they try to decrease their dependency on other nations and protect and foster domestic small companies. The disadvantage for an import substitution based industry, ISI, is although it achieves growth it does so through a greater period of time. On the other hand, growth and development from export oriented industries, EOI, has greater results and is so much faster than import substituting industries. Examples of countries that adopted import based industries are countries of Latin America while countries that adopted Export oriented Industries are countries of East Asia.