Governments Involvement in Trade

609 Words2 Pages
bulb-icon

Recommended: Role of government in foreign trade

There are many reasons for which governments decide to interfere in the trade of goods and services. Those reasons can be economic, cultural or political. They often choose to involve themselves because the society’s economy is performing worse than expected. There are ways governments can intervene to help their nation such as inflicting different trade barriers, the common ones being tariffs and quotas. First of all, one of the ways a government can help its nation is by imposing tariffs. The basic definition of a tariff is a tax, which is placed on an imported or exported product, by the government. The imported good can be charged per unit, for example two dollars per bag of rice, or by percentage, for instance 15 percent charge on the price of a tractor (Caballero). There are many ways these taxes can be helpful. Firstly, they can protect domestic producers from international competition. A government may use a protective tariff to artificially increase the price of an imported good. For example, if there’s a 50 percent tax on a machine which is imported and was originally sold for 100 dollars, it will now cost 150 dollars. Local companies can then sell the same machine for 149 dollars (Martin Frost). By raising the tariff on an imported good, it makes domestic goods seem more appealing to consumers because of their low prices, by creating a better national economy. Also, a revenue tariff can be imposed on a good which is not produced in the country. It is basically an amount created to make money for the government. For example, if a country does not produce any rice, it can place a revenue tariff on it and have a constant stream of earnings. There is also another type of tariff called ‘export tariff’. Though it isn’t used ... ... middle of paper ... ...ncrease internationally. This is the reason why the Organization of Petroleum Exporting Countries (OPEC) was created: “This group of nations from the Middle East and Latin America attempts to restrict the world’s supply of crude oil in order to earn greater profits” (Wild 165). Essentially, quotas are another positive way governments can come aid to their nation. In conclusion, tariffs and quotas are two different kinds of trade barriers that basically have the same purpose: they are both defensive methods inflicted by the government to help deal with trade between nations. Works Cited http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp http://www.wisegeek.com/what-is-an-export-tariff.htm http://www.fao.org/docrep/003/x7352e/x7352e03.htm http://www.investopedia.com/terms/q/quota.asp http://martinfrost.ws/htmlfiles/tariff1.html

Show More
Related

  • Assess The Likely Economic Effects Of An Increase In Protectionism

    644 Words  | 2 Pages

    Many developed and developing countries want to protect their own industries such as India who is still reluctant to give foreign firms greater access to its economy, as shown by the political row over its much delayed decision to open up the supermarket sector to global giants

    Read More

  • The Impact of US's Tariff on the Steel Industry

    587 Words  | 2 Pages

    As illustrated in Fig.1, the domestic price before trade is Po with quantity produced at Qdo. After trade, which leads to a shifting out of the supply curve, the price falls to the world level of Pa, where quantity consumed is Qa, of which only Qda is produced domestically. Domestic producer have lost production and their revenue has fallen to Pa*Qda. Therefore, some countries feel the need to protect their own industries or production lines from foreign competition by imposing tariff. When a tariff is imposed, supply curve is shifting in from Sd + f to Sd+f+t, leading to a drop in quantity consumed at Qb, which means domestic producers are increasing production to Qdb. Also, their total revenue will rise to Pb*Qdb. At that time, the government will receive the revenue from the difference of Qb and Qdb multiplied by price Pb-Pa. The consumption will decrease because there is less of the product and the product is set a higher price. Indeed, foreign exporters will receive Qb-Qdb times Pa. The tariff is more effective the more elastic the demand curve is.

    Read More

  • United States Trade Policy: Current and Future Role in a Global Economy

    2527 Words  | 6 Pages

    The United States has for over two centuries been involved in the growing world economy. While the U.S. post revolutionary war sought to protect itself from outside influences has since the great depression and world war two looked to break trade restrictions. The United States role in the global economy has grown throughout the 20th century and as a result of several historical events has adopted positions of both benefactor and dependent. The United States trade policy has over time shifted from isolationist protectionism to a commitment to establishing world-wide free trade. Free trade enterprise has developed and grown through organizations such as the WTO and NAFTA. The U.S. in order to obtain its free trade desires has implemented a number of policies that can be examined for both their benefits and flaws. Several trade policies exist as options to the United States, among these fair trade and free trade policies dominate the world economic market. In order to achieve economic growth the United States has a duty to maintain a global trade policy that benefits both domestic workers and industry. While free trade gives opportunities to large industries and wealthy corporate investors the American worker suffers job instability and lower wages. However fair trade policies that protect America’s workers do not help foster wide economic growth. The United States must then engage in economic trade policies that both protect the United States founding principles and secure for tomorrow greater economic stability.

    Read More

  • Argumentative Essay On Free Trade

    2081 Words  | 5 Pages

    Few governments will argue that the exchange of goods and services across international borders is a bad thing. However, the degree to which an international trading system is open may come into contest with a state’s ability to protect its interests. Free trade is often portrayed in a good light, with focus placed on the material benefits. Theoretically, free trade enables a distribution of resources across state lines. A country’s workforce may become more productive as it specializes in products that it has a comparative advantage. Free trade minimizes the chance that a market will have a surplus of one product and not enough of another. Arguably, comparative specialization leads to efficiency and growth.

    Read More

  • Monopsony Not Amazon Analysis

    895 Words  | 2 Pages

    With any type of government interference, there may be consequences that arise, these include hefty fines imposed on businesses that fail to comply with new legislation, as well as the cost of regulating and follow up with any price controls that are set up. The consequences of government interference could negatively impact the economy and consumers as whole. It is a delicate matter, having the government come in and regulate trade, imposing price restrictions and so forth. Understanding the consequences that allowing

    Read More

  • Government Intervention

    1036 Words  | 3 Pages

    Tariffs – Hill (2011, p199) defines this as a tax levied on imports or exports. The tax may be fixed (specific) or as a percentage of the value of the goods (ad valorem). Import tariffs help governments to increase revenue, protect local producers who gain and affect consumers who lose through higher priced goods. Import tariffs promote inefficiencies in local industries as goods are produced that could be more efficiently produced abroad. Export tariffs are less common. They are used to raise revenue on exports an...

    Read More

  • Krugman's Is Free Trade Passe?

    1098 Words  | 3 Pages

    ... of their country, but allowing small groups to benefit while the majority are negatively impacted or not impacted at all.

    Read More

  • Trade Embargo Case Study

    1098 Words  | 3 Pages

    A trade embargo is a law or policy a state initiates which prohibits or otherwise restricts the importation/exportation of goods. Trade embargoes are typically motivated by political, economic, moral, or environmental reasons, and used as a form of protest against another country's practices.

    Read More

  • Globalization: Major Impediments To The Growth Of International Trade

    1623 Words  | 4 Pages

    The difference in the political economy has often been a major impediment to the growth of international trade among nations. Inflation rates, consumer spending, wars, tariffs all affect international trade. “Trade also brings dislocation to those firms and industries that cannot cut it. Firms that face difficult adjustment because of more efficient foreign producers often lobby against trade. So do their workers. They often

    Read More

  • Role of Governments in Trade

    1713 Words  | 4 Pages

    While free trade is supposed to mean that governments do not interfere with trade by applying policies to affect trade, all governments do intervene in trade to give their country an increased financial advantage. The effects of the government policies are further discussed as well as how those policies affect free trade.

    Read More

  • International Trade of Developing Countries

    1140 Words  | 3 Pages

    International trade of developing countries is the classic weak vs. strong dichotomy, and underdeveloped or developing countries cannot make it solely on their own efforts; the have nots need help from the haves. Developed nations trumpet the claim that the answer to developing nations’ international trade issues is untrammeled or open market activity as opposed to government intervention by developed nations’ governments. This begs the question as to what extent the governments of developed nations are or should be responsible for supporting developing countries’ growth in international trading markets. Often the protectionist actions of developed nations’ governments to enhance their own international trading activities are the very hindrances faced by the developing countries, so much so that the developed nations are morally obligated to support the developing countries to offset the roadblocks created by these same developed countries with tariffs, quotas and other trade barriers.

    Read More

  • Impact Of Globalisation On Wealth And Wealth

    1152 Words  | 3 Pages

    Every society started off in the same way: poor. However, by now most countries have been able to shift from this economic status due to globalization. Globalisation and international trade are not new concepts and have been around for many years. Over recent years, countries have expanded the quantity of trade that is exported worldwide. Due to trade agreements being made among many countries, varied resources from some countries will become available to the individuals in another country. The amount of resources in every country is constantly getting reduced and there are scarcities of these resources. Every country has a policy to manage its resources to be able to exploit the benefits of trade for every citizen. Governments come up with these policies to monitor the degree to which the state is involved with trade in other countries.

    Read More

  • International Trade and The Global Economy

    1026 Words  | 3 Pages

    The global economy needs free trade. Countries need free trade. Trade with other countries occurs at some level in every country globally. There may be some indigenous tribes within some countries that can lay the claim that they are self-sufficient, however, there is not a single country that can say the same. Proponents of an open trading system contend that international trade results in higher levels of consumption and investment, lower prices of commodities, and a wider range of product choices for consumers (Carbaugh, 2009, p26). Free trade is necessary. How do countries decide what to import and what to export?

    Read More

  • Is Free Trade Always Good?

    1171 Words  | 3 Pages

    Free trade is a policy that relies on the concept of comparative advantage that when comparing two countries one of those countries will have the capability to make a product that is better than the other country. So it is best if each country focuses its efforts and resources into one product to increase the economic activity for both countries. The determination of who produces a product better is based on the open market without intervention from a government who may try to control a trade by imposing government protective measures such as tariffs. The World Trade Organization has been tasked with monitoring free trade, but it has been noted that their policing has not been effective to stop such interventions. Free trade not only relies on a laissez-faire approach but also on assumptions of conditions. The assumptions used by many for economic theories are not always accurate but rather the justification for using the assumptions is so that economic theories can be applied for the greater good of an economy.

    Read More

  • Advantages And Disadvantages Of International Trade

    921 Words  | 2 Pages

    International trade is an economic practice where countries can import and export goods with no concerns to government intervention which includes tariffs and import/export bans or limitations. International trade has several advantages on developing countries; who are nations with low levels of economic resources or low standard of living. Developing countries can advance their economy through strategic free trade agreements. Free trade generally improves the quality of life of poor nations. Nations can import goods that are not easily available within their borders; importing goods may be cheaper for than trying to produce consumer goods. Many developing nations do not have the production procedures available for translating raw materials into valuable goods.

    Read More

More about Governments Involvement in Trade

Open Document