BARRIERS TO TRADE

INTRODUCTION The concept of comparative advantage makes a strong case for free, unrestricted trade among nations. Yet, some people support the use of tariffs or quotas to restrict or stop the international flow of goods and services. These barriers to trade exist in most countries and have differing effects on producers and consumers in the countries involved. Recently the WTO (World Trade Organization) met in Seattle to discuss issues in trade, including trade barriers.

Today, we will examine some of the trade barriers discussed at the WTO meeting and why barriers are imposed.

Definitions

Tariff: A tax on imported goods.

Quotas: A limit on the quantity of imports.

Export Subsidy: Government payment to competing firms in its own country. This allows firms to sell their goods at lower prices thus competing well in both their country and other countries.

Product Standard: Safety requirements, product features, and packaging requirements

While reading…

• Underline any vocabulary that needs clarification

• Highlight any important points. Be sure to include the following: What is the WTO? (Purpose of WTO)

What was the purpose of the meeting?

What are the specific trade barriers (challenges and restrictions) discussed in the article?

Why are the barriers imposed?

Read the article "The Battle In Seattle."

• Examine the clothing you are wearing and other items you own; determine where these items were produced.

• (Most items have a "Made in _______" tag or label.)

• Generate a list and answer the following questions:

1. How do you benefit from being able to buy goods made in other countries?

2. Would you favor a policy that would raise the price on T-shirts and reduce the amount available?

• Chances are some of the items on your list are imported from other countries.

• Everyone is affected by international trade.

Even though economists believe free trade will be mutually

beneficial (living standards in countries that trade with each

other), many barriers to trade exist today. Most barriers

raise prices and reduce choices.

See if you can identify the following countries:

1. Country A: Restricts the number of cars that may be

imported each year from Country X.

2. Country B: Provides subsidies to some companies so they

can sell their products at lower prices to other countries.

3. Country C: Imposes taxes on “certain” imported goods.

• Are you surprised by these answers?

• The answers given are correct, but many other country names

would also have been correct. • Almost all countries impose some barriers to trade.

Countries establish policies to restrict trade in order to protect homeland industries or new industries, to protect jobs, and to gain income for the government. For example, in the 1970s, unions and U.S. automobile manufacturers supported quotas on less expensive imported cars to help keep their own products competitive.

Read the following definitions of trade barriers. Then in cases 1-4, decide what kind of barrier is being imposed.

Definitions

Tariff: A tax on imported goods.

Quotas: A limit on the quantity of imports.

Export Subsidy: Government payment to competing firms in its own country. This allows firms to sell their goods at lower prices thus competing well in both their country and other countries.

Product Standard: Safety requirements, product features, and packaging requirements.

Cases:

1. A tax of 15% makes jewelry from Mexico more expensive than jewelry make in the United States.

2.Korea may export only 15,000 automobiles a year to the United States.

3.The rungs on the ladder of any bulldozer sold in Germany must be 12 inches apart, but US manufacturers generally make the rungs 15 inches apart.

4.A new textile firm asks its government to provide financial assistance to make it possible to sell its products overseas at a lower price that will compete well in other countries.

tariff

Quota

Product Standard

Export Subsidy

Trading Around the International trade is always growing.

For example, in 1959 exports accounted for only 4 % of U.S. GNP. By 1995, that had nearly tripled.

Why?

Economists expect this growth to continue, and each year more and more large and small businesses rely on international markets for their success, or compete with imported products that U.S. consumers are obviously more and more willing to buy. In all of these ways, international trade has a large and growing impact on students' lives.

Two key factors in the increase in world trade have been improved communications and transportation technology. Information today travels all over the world at the speed of light, and jumbo jets and huge supertankers crisscross the globe loaded with new and improved products. You hear it said many times, but it really is true that we live in an increasingly global economy.

When individuals, regions, and nations specialize in what they can

produce at the lowest cost and then trade with others, both production and

consumption increase.

Two factors that prompt international trade are 1international differences

in the availability of productive resources and 2differences in relative prices.

Individuals and nations have a comparative advantage (production of a

good or service they cannot produce/provide in their country) in the production

of goods or services if they can produce at a lower opportunity cost than other

individuals or nations.

As a result of growing international economic interdependence,

economic conditions and policies in one nation increasingly affect economic

conditions and policies in other nations.