International Trade and Trade Restrictions
Trade restrictions can be in the form of tariffs, which are taxes on imports; quotas, which are limits on the quantity of a particular good that can be imported or exported; or other trade restrictions. International trade efficiencies, trade restrictions, and the consequences of these restrictions will be discussed further.
World trade offers many advantages to the trading countries: access to markets around the world, lower cost through economies of scale, the opportunity to utilize abundant resources, better access to information about markets and technology, improved quality honed by competitive pressure, and lower prices for consumers (McEachern, 2012, p. 733). Comparative advantage, specialization, and trade allow people to use their scarce resources most efficiently to satisfy their unlimited wants.
International Trade and Trade Restrictions Essay Example
Comparative Advantage is the ability to make something at a lower opportunity cost than other producers face (McEachern, 2012, p. 32). The ability to make a good at a lower opportunity cost gives that individual, firm, region, or country a comparative advantage. Even if a country has absolute advantage in all goods, they should specialize in producing the goods in which it has a comparative advantage. If each country specializes and trades according to the law of comparative advantage, everyone would benefit from greater consumption possibilities.
McEachern provides three reasons for international specialization: countries having different resource endowments, greater economies of scale can be achieved when firms participate in international trade, and tastes differ from country to country (McEachern, 2013, p. 719-720). Every country has a comparative advantage in the production of some products. This means that the labor and capital resources available in the reason are more productive when focused towards a particular industry and thus are able to be produce that product better as a result.
In the case of the textile industry, Pakistan enjoys a comparative advantage as it has many cotton fields, providing it direct access to the raw material for the industry. It further has been operating in that industry for a long time that has spawned a lot of trained workforce relating to that industry in the country. Therefore, law of comparative advantage dictates that it should produce textile materials. The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations (WTO, 2012).
Their goal is to help producers of goods and services, exporters, and importers conduct their business. The WTO and agreements such as NAFTA open up free trade, allowing goods to move freely and thereby aiding consumers in various countries in terms of prices and quality. It also spawns healthy competition in the local industries. Trade restrictions can lead to a breakdown in competition and can lead to adverse effects in the local and international market. Restrictions can benefit certain domestic producers that lobby their government for benefits.
Congress tends to support the group that fights back, so trade restrictions often persist, despite the clear and widespread gains from freer trade. For example, U. S. growers of sugar cane have been protected from imports, which results in an increase in U. S. sugar prices. Higher prices hurt domestic consumers, but they are usually unaware. As McEachern states, “Consumers remain largely oblivious. ” Who is responsible for trade ethics? Government might be the initial answer but all constituents involved should be aware and be transparent. An example is Nike, Inc.
They provid a statement in understanding how to change the way an industry views its labor force. It does not happy by monitoring factories alone. Monitoring reveals the issues, issues that in turn are locked into a complex web of root causes. The ability to address these root causes should be shared by many, owned by no single constituent (Nike, Inc. , 2013, p. 1). One of their strategies is to transform working relationships with their contracted factories to incentivize change that will benefit workers. Are trade restrictions effective? Trade protection can foster inefficiencies.
The immediate cost of such restrictions includes not only the welfare loss from higher domestic prices but also the cost of resources used by domestic producer groups to secure the favored protection (McEachern, 2012, p. 732). These costs may become permanent if the industry never realizes the economies of scale and never becomes competitive. Protecting one stage of production usually requires protecting downstream stages of production as well. The biggest problem with imposing trade restrictions are that other countries usually retaliate which shrinks the gains from trade.
Some experts believe the costs of protecting the jobs of workers in vulnerable industries, which are ultimately borne by taxpayers or consumers, far exceed the potential cost of retraining and finding new jobs for those workers (Globalization 101, 202, para. 1). In addition, that it may not promote firms and industries to make necessary changes to challenge foreign competition and find efficiencies to which then would make them become even more dependent on government protection. As international trade has increased, conflicts over trade have also increased.
Trade restrictions may continue to be very political in nature. The more companies like Nike and consumers start being more aware of ethical behavior around international trade, the more everyone will benefit. The U. S. government does take responsibility for workers who lose their jobs by international trade and have programs established to assist in training and support to re-employ those workers. As countries specialize and trade according to the law of comparative advantage, consumers should also benefit from efficient production and cheaper prices.
The increase of technology may have an impact that will increase the speed at which international trade and efficiencies happen. References McEachern, W. A. (2012). Economics, 9e (9th ed). Mason, OH: South-Western. Globalization 101 (2013). The Levin Insitute. Consequences of trade restrictions. thttp://www. globalization101. org/consequences-of-trade-restrictions/ Nike, Inc. (2013). Responsibility. Targets and performance. http://www. nikeresponsibility. com/report/content/chapter/targets-and-performance#Labor World Trade Organization (2013). http://www. wto. org/english/thewto_e/whatis_e/whatis_e. htm