Trade restrictions: tariffs, subsidies, quotas and cartels, How trade restrictions affect international trade

Many nations impose limits on trade. There are four main types of trade restrictions: tariffs, subsidies, quotas and cartels. The tariff is a tax placed on imported goods. Tariffs are of two kinds - revenue and protective. A revenue tariff raises money for the government. For this reason, revenue tariffs are generally low so that consumers will continue to purchase the taxed goods. However, protective tariff taxes an imported goods so that the price becomes as high as, or higher than the similar domestic manufactured product. Protective tariffs make imported products more expensive and encourage people to buy goods produced in their own country. (example: if the cost of producing a pair of shoes is 20$ in the United States and 10$ in Italy, Italian shoes are cheaper. Americans then would buy Italian shoes to save money. To encourage domestic shoe purchase, the federal government could levy a tariff of 15$ pair on imported Italian shoes)

A subsidy can be thought of as a tariff in reverse. Instead of taxing the foreign product, the government gives a subsidy to the industry that is suffering from foreign competition. (In the shoe example, the government would grant a subsidy to the nation's shoe industry. Shoe manufacturers could then meet some of their production costs through the subsidy and charge less foreign producers for their products.

A nation also can limit the amount of goods that can be imported into the country. It's called a quota. (example: a quota on shoes might limit shoe imports to 100 million pairs a year. If American buy 500 million pairs of shoes each year, most of the market will go to American producers). Usually, quotas are imposed when tariffs and subsidies have failed to protect domestic industries from foreign competition.

Sometimes a group of companies or country band together to restrict competition. It's called a cartel. the members of the cartel agree to limit the supply and control the price of a particular good. Members meet regularly to decide how much to sell and how much to charge for their product.

but it's best for nation to use tariffs, because they provide domestic job protection and aid industrial development. Also tariffs are important to the national defense.

Sometimes tariffs and subsidies are applied on a regional rather than a national basis. (Example:in the late 1950s six Western European nations - Belgium, France, Italy Luxembourg, the Netherlands and West Germany - formed the European Economic Community EEC, usually called the Common Market. Later Denmark, GB, Greece and Ireland also joined. The EEC established common tariffs against products from non-EEC nations. At the same time the countries eliminated tariffs among themselves).

Specialization and trade result in interdependence. Many nations do not want to depend on other countries for products necessary to national defense, such as oil and steel.

Trade restrictions limit world trade, reducing the total number of goods and services produced. Trade restrictions also raise prices.

That's why there is an international organization as GATT (General agreement on Tariffs and Trade), which members met periodically in an effort to lower tariffs and settle trade disputes. The GATT also restricted member countries from banning or limiting imports from the other participants. In 1995 the World Trade Organization became the successor to it.

Поиск по сайту: