Due to fluctuations in currency prices, it is sometimes possible for foreign exporters to charge unnaturally low prices for their products. This is called dumping and will greatly reduce the sales of the domestic competitor. A tariff can be added to artificially raise the price of the foreign product. While this comes at the expense of consumers who wish to buy the cheapest products, it benefits American businesses and thus can indirectly benefit cons... ... middle of paper ... ...edcontent.com/article/1362775/tariffs_import_quotas_and_exchange.html?cat=3. Accessed 03/02/10  Mike Moffatt.
Economic exchange is an important tool to enhance economic growth. However, contrary to the expectation, intensified economic exchange in America, as a result of free trade has negatively impacted on wage rates. Consequently, as free trade extends to non- American economies, converting the whole world to a global village, the impact on wages spreads out to other nation and with the current trend it will soon flatten wages across the globe at a low level. The deregulation in trade has resulted to relocation of production towards the cheap labor zones hence gaining a completive advantage. In an effort to compete fairly, production firms left in the developed countries try to reduce their production costs by reducing labor costs and deteriorating work environment conditions, hence resulting to a race to the bottom.
Tariff and Non-Tariff Barriers Tariff and non-tariff effect global financing operations by having an impact on whether countries will build and invest in companies in the home country. If an organization wants to build a company that imports raw material that has a tariff on it, it would make the product considerably more expensive to produce and export. Tariffs do benefit the government by increasing the revenue and also benefit home-based businesses by decreasing foreign competition. The tariff also helps protect jobs in the industry that has eliminated the foreign competition but a negative impact is felt because it causes the consumer to pay more for a product that is imported (Hill, 2004). If a country it prone to levy tariffs on items that an organization may need, it would increase the risk of doing business while located in that company.
One of the examples of Non-tariff trade barrier is domestic content requirement. Domestic content requirement not only protect the local industries, it also helps the supporting industries to prosper and gain a larger market share. Non-tariff barriers are restrictions imposed upon countries such as voluntary export restrictions, antidumping and subsidies, quotas (Hill, 2004). Voluntary export restrictions (VER) is when a country limits the number of product being exported to a certain country in order to gain favor or to diffuse a situation in which trade tensions are running high. A second type of barrier is a quota.
If it is assumed that a nation plans for a small portion of international trade, then collecting an import tariff will lower its national welfare. This is because there is not a positive welfare effect from the tariff to offset the deadweight loss of consumer surplus. If a nation could impose a tariff that would improve the terms of trade with its trading partners, then it would have a larger share of the gains from trade. This might increase the national welfare and offset the deadweight loss of consumer surplus. A small country doesn’t have enough economic trading power to influence the terms of trade.
The opposite side to trade creation is trade diversion. Trade diversion occurs when higher cost suppliers within the free trade area replace lower cost external suppliers. Member countries may trade more with each other than with non-member nations. This may increase trade with a less efficient or more expensive producer because it is in a member country. Weaker companies can be protected inadvertently with the bloc agreement acting as a trade barrier.
Companies who provide cheaper made products, can cause a deficit for any country by flooding their economy with these exports. Fair trade prevent this and provides developing countries with the opportunity to provide merchandise that is not readily provided to the consumer. Fair trade helps provides jobs in developing countries and protect them from the abuses of monopolization. To solve this problem, there must be a fair exchange for goods and services. If these practices are allowed to continue, we as the consumer, will be paying higher prices at the stores.
An export ban increases the availability of the product to domestic consumers, and domestic prices decrease to absorb this increased availability, leading to a price distortion. The exact price distortion will depend on the price elastic¬ity of the product: if consumer demand is responsive to price changes, a smaller price decrease is required to absorb excess availability.
(Salvatore, n.d.; Wang, 2012) VERs able to improve exporting country’s welfare position as the exporting country able to capture tariff equivalent revenues. Although, the trade restriction induced by the importing country, the importing countries will generally loss the welfare, due to VERs is benefit to exporting countries at the expenses of importing countries. (Allen et al.,
If the reduction of import purchasing, then more internal production and sales. Tariffs are usually applied if domestic producers to convince the government policy makers to compensate for overseas producers who unfairly gain due to overseas low wage dumping behavior, competitive advantage, or reduce the production cost. However, tariffs are applied as a general import restrictions means. A tariff is a trade barrier option, because the tax is paid to the government treasury. Not only to protect trade local producers of the advantage, but the extra tax revenue, government revenue,... ... middle of paper ... ...any case.