Free Essay: the Effects of Trade Barriers on Economy
The most important trade barriers historically have been imports, taxes and quotas. Over the past years, governments have been adopting trade policies to reduce international trade in specific markets. Trade tariffs also have political and economic objectives. They impose significant costs affecting the economy.
Trade tariffs protect workers and industries from foreign competition. This is achieved by raising the prices of imports thus affecting the economy. Additionally, the cost of protecting the jobs of those working in vulnerable industries exceeds the costs of retaining and creating new jobs for the same workers.
In addition, trade barriers cost consumers a lot of money thus affecting the economy. For instance in the US, trade barriers cost consumers up to $ 80 billion in a year. It also costs each family more than $ 1, 200 especially when it comes to prices of foods, sugar and other appliances made from steel.
According to the Economic Co-operation and Development, it is estimated that consumers pay $1.5 billion dollar on sugar trade barriers only. This has a serious effect on the economy because consumers are forced to find other alternatives.
Trade barriers also have an effect on the economy because of export subsidies. Subsidizing exports can be costly to the government more than to the programs that are specifically designed to boost economic growth. The government often designs programs aimed at eliminating noncompetitive production into an internationally competitive sector. Such programs are cheaper compared to the costs that the government incurs as a result of export subsidies.
Trade barriers also discourage industries and protected firms from making changes that challenge foreign competition. Protected firms have government support because of export subsidies and import restrictions. However, they have less incentive to enhance their management and efficiency. Eventually, they become less dependent on the government for their growth thus affecting the economy.
Trade barriers are also an impediment to a wide range of development efforts. It has been proven that many developing countries cannot sell their products efficiently because of quotas and tariffs. This is a factor that hinders economic growth. In addition, such countries cannot explore domestic markets more efficiently.
Trade barriers worsen recessions. During an economic recession, unemployment rate is usually high. Therefore, workers and firms face tight external competition. Such companies would want the government to protect them from the competition by employing trade tariffs. However, by employing the tariffs, they do not work efficiently to enhance economic growth.
For example, when the world suffered the Great Depression of 1930, the US tried hard to sustain its economy by raising trade barriers and tariffs. Other nations also adopted similar measures. Even so, the end result was a worsening economic recession. The Great Depression grew from bad to worse and its effects could be felt across the globe.
Trade barriers affect exporting and importing nations. The benefits that could be reaped from international trade are minimized by the tariffs. This is because they make it very difficult for firms and banks to efficiently operate in foreign countries or to sell their products in a country of their choice.
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