Analysis Of Elements On International Trade

Tariffs

Discuss about the Analysis of Elements on International Trade.

In the present times there has been a significant increase in the domestic consumers which has led to the significant decrease in the overall costs of the goods. This has led to the increase in the overall competition and has also allowed the different industries to do the shipping of their products abroad.  In addition to this, it has permitted the industries to do the shipping of their products abroad. Though, in spite of all this, there are a number of things which are important to be discussed while doing the consideration of the some of the important parts of the International trade. There will be a discussion on the international trade, the costs and the benefits associated with the tariffs, the welfare effects and the winners and losers in tariff policies. Further, there will be a discussion on the export subsidies Further there will be discussion of export subsidies and agricultural subsidies. In addition to this, there will be a detailed explanation of the affect of trade in the agriculture in United States and the European Union. In addition to this, there will be a study on the effects of voluntary exports restraints on the exporting and important nations. Further, there will be analysis of how the different trade policies may impact the countries.

The tariff may be defined as any kind of tax which may be implemented in the cost of those goods which have been imported. It is something which may be added to the costs of the good. In addition to this, it is one of many trade policies which can be enacted by the nation. The tariff is important from varies perspectives. It helps in the overall protection of some of the infant industries and also the developing countries (Tarr &  Morkre, 1984). In addition to this they are also used by the advanced economies which have the developed industries. There are many reasons for the use of the tariffs. Thus, tariff can be defined as the tax which may be implemented on the exports or the imports. Tariff is something which can be in the form of the customs duty and can be changed for different businesses.

There are a large number of benefits associated with the tariffs. These include the following:

Protection of the domestic employment: The process of levying the tariff is something which is highly politicized.  This may lead to the increase in the possibility of the overall increase in the competition from some of the imported goods which can be used for threatening of some of the domestic industries. These industries may use different tactics for their purpose of firing of the works or may shift the entire production abroad in order to cut down the costs. This may lead to such a situated where there are higher situation of unemployment within the nation and the electorates are less happy. The argument which is related to the unemployment may actually take a shift to some of the domestic industries who do complain about the foreign labor which can be available at the cheaper costs (Tullock, 1967). In addition to this there may also be the rising complaints about the poor working conditions for the people and the lack of proper regulation because of which the companies can produce the goods at a cheaper rate. In general, in the situation of economics, the different nations may produce the goods unless they do not have any kind of comparative advantage.

Costs and Benefits of Tariffs

Protection to the customers: Another important thing why tariff is more important that the government may levy a tariff on some of the products which are harmful for the people and can lead to the danger amidst the people. An example of the same is South Korea, where the tariff is placed on imported beef from the United States as it is believed by their government that this beef can lead to the diseases. Another example can be observed in India where the government has levied tariffs on cigarette as it is very harmful for everyone (Faruqui et al, 2010).

Infant industries: Tariffs are useful to give the protection to some of the infant industries. This can be observed to be as a part of the Import Substitution Industrialization (ISI) strategy which may be employed by the different developing nations of the world. The government in the development nations will be levying huge tariffs on some of the imported goods in the industries where it wants to observe a major growth. This also led to the overall increase in the prices of some of the imported goods. In addition to this, it helps in building of the suitable platform for the domestic market to sell the goods which are produced in the nation. This helps in fostering of the growth in the country and to ensure that there is more and more protection for the national companies. This also protects these domestic companies from being forced out to more competitive pricing (Lee &  Roland, 1993). In addition to this, it also leads to the decrease in the unemployment and also permits the different developing nations to shift from the agricultural goods to other finished products. Though, there is more and more criticism against the protectionist strategy which actually revolved around the overall cost related to the subsidizing and the development of some of the infant industries. In case there is a situation that any industry develops and grow without any kind of competition, it will lead to the winding of the production of some of the lower quality goods. Also, the subsidies may be required to sap economic growth.

National Security: There are also certain barriers which are employed by some of the developed countries in order to ensure that some of their industries are protected. It is assumed that these are some of the industries which are supporting the security of the nation. The different defense industries may be watched as one of the most vital industries in the nation and for the interests of the nation. In addition to this, these are the industries which may also enjoy the significant level of protection (Rodriguez, 1979). An example of the same is that while there is industrialization in both Western Europe and the United States, both of them are very protective with respect to their defense industries.

Welfare Effects of Tariff

Realization: Another benefit of tariff is that the nations may set up different tariffs for the purpose of realization. This is done to ensure that any trading partner hasn’t done is not playing with the rules of the nations. For example: if it is believed by the France that United states has given the permission to sell the champagne wines in US, it may levy a huge amount of tax on the imported meat from United States (Baldwin et al, 1980). In such a condition there may be a realization and France may take the decision to pause its retaliation. This can be employed if any of the trading partners has gone against the foreign policy objective of the government.

There are a number of welfare effects which are associated with the tariff which may include the following:

Tariff impacts on the different producers of the country. The producers of the country may be benefited because of the tariffs. Because of the increase in the overall price of the product increase the profits of the producers in the country. In addition to this, it also increased the overall output of some of the existing firms and also the new firms (Neary, 1993). In addition to this, it also helps an improvement in the employment, profit, payments and fixed costs in the country.

Tariff is good for the government of the nation: This is because the government receives a good amount of profits from the tariffs. This is beneficial for the people of the nation as they can be benefitted from the tariffs (Bond & Syropoulos, 1996). The funds obtained from these revenues can be used in the spending programs which lead to the benefits on the people.

Tariff is beneficial for the important country: This is because if the total gains and losses to consumers, producers and the government are summed up, it can be found that the tariff is actually beneficial for the nation as a whole (Magee et al, 1972).

Tariff may have an impact in the consumers of the important country. The people who consume the product may have to face a negative impact of tariff. They may have to face the increase in the prices in case of domestic goods and also in case of imported products. Therefore these people often have to spend high amount because of the tariff (Williamson, 2005). If tariff is not levied on these people, they may be impacted. Thus the consumers of the country are the losers as they have to lose money. The winners in such a scenario are the domestic companies who are producing the goods within the nation (Beine et al, 2008). They get the opportunity to sell the products at a fair price which they couldn’t have done if no tariffs had been levied by the government on the imported goods. Had there been no tariff, these producers would have to sell the same goods at the lower price because of the market competition (Shafer, 1994). Another winner in case of the tariff is the nation as a whole as it has the overall gain. The government is also a winner as it gets the revenues which can be used for different tasks and purpose. Another loser other than the customers is the companies who have to pay the tariffs. Because of the high costs, they can sell fewer products in the importing country (Tang, 2000). 

Winners and Losers in Tariff Policies

An export subsidy may be defined as the policy which is implemented by the government of the nation in order to encourage the export of different goods and also to discourage the sale of the goods in the domestic markets. This sale may be through the direct payments and also by some of the other measures including the low costs of loans, relief of taxes from the exporters or international financing which is advertized by the government. The government of the nation has to do the export in two forms (Brander et al, 1985). This may include the two kinds of subsidies. This may include the government subsidy and also the cash subsidy. The government subsidy on one hand includes the trade information, the studies released to the feasibility, the foreign representation and the trade shows. Another subsidy is the cash subsidy may include the rebate on the imported raw materials and the duty free import which is implemented on some of the manufacturing equipment which may be called as the indirect cash subsidy (Collie, 1991). Other than this, it may also include the drawback as the percentage related to the value of some of the exports which may be called as the direct cash subsidy.

An agriculture subsidy may be defined as the subsidy of the government which is paid to the farmers in the nation to help to raise their income. In addition to this, it also helps in the management of the supply of some of the agricultural subsidies. It also has an involvement in the cost and the supply which is related to some of the products (Parikh &  Suryanarayana, 1990). An example of some of the commodities on which the subsidy is given includes maize and corn, sorghum, cotton and milk etc. There may be different kind of agricultural subsidies which may include the input subsidies and fertilizer subsidies.

Agricultural subsidies has widely impacted the agricultural trade in the US and Europe. At present, the United States pay a total subsidy of around $20 billion to their farmers each year for the purpose of stabilization of the income earned from the farms. This is done with the help of the farm bills. This money has been directly used by the farmers in US and Europe. Because of the subsidies, the prices of some of the agricultural related commodities can be brought down. This is useful with respect to the international trade (Jensen et al, 2014). The low prices of the crops are also an encouraging factor for the developing nations to become the dependent buyers of some of the food which may be there from some of the wealthy systems. Under the same, the subsidized farmers may be easily able to dump some of the lower costs farms.

Export Subsidies

But there are also some of the negative impacts of the agricultural subsidies. This is because they can lead the producers to have an over use of some of the fertilizers or the pesticides. This can lead to the degradation of the soil, depletion of some of the ground water resources. In some of the situations they may also lead to the distortion in some of the global commodity markets. This may also impact the global economy and the national security. In addition to this it can increase the poverty in the nation. 

Let us assume that there are two different trading countries one of which is the exporting nation while the other is an importing nation. The supply and the demand curves for these two nations can be explained in the diagram. P_FT  is the free trade equilibrium price. At this price, the excess demand which may be raised by the importing nation may be equal to the excess supply which is given by the exporter.

The quantity of export and import can be explained in the blue line in both the graph. This is actually the horizontal distance between the supply and the demand curves. It is assumed that the exporting nation does the binding of the VER which may be set equal to the length of the red line segment. Whenever there is a new equilibrium, the country which actually important will also rise to such a level at which the import related demand may be equal to the quota level (Harris, 1985). Thus, there will be a fall in the export supply which would be equal to the quota level (Feenstra,1 984).

	Importing country	Exporting country
Consumer Surplus	– (A + B + C + D)	+ e
Producer Surplus	+ A	– (e + f + g + h)
Quota Rents	0	+ (c + g)
National Welfare	– (B + C + D)	c – (f + h)
World welfare	– (B + D) – (f + h)

Exporting country consumers will find an increase in the overall wellbeing because of VER. The decrease in the domestic prices will raise the amount of consumer surplus. In addition to this the producers in the export country will be observing that there is an overall decrease in well being because of the quota.

 The consumers of the importing country will suffer a reduction in the well being of VER (Berry et al, 1999).  The producers of the importing country may experience an increase in the overall well being because of VER. Also, there is no quota rent effects because of VER. 

Conclusion

Thus it can be concluded that there are different elements which may impact the international trade which may be there between the nations. The international trade is an important function for both the importing and the exporting nations. The implementation of the different taxes in the form of tariffs may also have the significant benefits to the importing country. In this report the discussion has been done on the impact and the benefits of some of the different elements related to the international trade. There has been discussion on the tariffs, its costs and benefits, its welfare effect on the nations. Further there has been a discussion on the export subsidies and agriculture subsidies. It has been found that how the subsidies may be important in case of international trade. Further there has been an analysis on the impact of VER on the importing and the exporting country.

References

Tarr, D.G. and Morkre, M.E., 1984. Aggregate costs to the United States of tariffs and quotas on imports: general tariff cuts and removal of quotas on automobiles, steel, sugar, and textiles: an economic policy analysis. Federal Trade Commission, Bureau of Economics.

Tullock, G., 1967. The welfare costs of tariffs, monopolies, and theft.Economic Inquiry, 5(3), pp.224-232.

Faruqui, A., Harris, D. and Hledik, R., 2010. Unlocking the€ 53 billion savings from smart meters in the EU: How increasing the adoption of dynamic tariffs could make or break the EU’s smart grid investment. Energy Policy, 38(10), pp.6222-6231.

Lee, H. and Roland-Holst, D., 1993. International trade and the transfer of environmental costs and benefits.

We

Rodriguez, C.A., 1979. The quality of imports and the differential welfare effects of tariffs, quotas, and quality controls as protective devices. The Canadian Journal of Economics/Revue canadienne d’Economique, 12(3), pp.439-449.

Neary, J.P., 1993. Welfare effects of tariffs and investment taxes. Theory, policy and dynamics in international trade, pp.131-156.

Bond, E.W. and Syropoulos, C., 1996. The size of trading blocs market power and world welfare effects. Journal of International Economics, 40(3), pp.411-437.

Magee, S.P., Bergsten, C.F. and Krause, L., 1972. The welfare effects of restrictions on US trade. Brookings Papers on Economic Activity, 1972(3), pp.645-707.

Baldwin, R.E., Mutti, J.H. and Richardson, J.D., 1980. Welfare effects on the United States of a significant multilateral tariff reduction. Journal of international Economics, 10(3), pp.405-423.

Winner

Williamson, J.G., 2005. Winners and losers over two centuries of globalization. In Wider perspectives on global development (pp. 136-174). Palgrave Macmillan UK.

Beine, M., Docquier, F. and Rapoport, H., 2008. Brain drain and human capital formation in developing countries: winners and losers. The Economic Journal, 118(528), pp.631-652.

Shafer, D.M., 1994. Winners and losers: How sectors shape the developmental prospects of states. Cornell University Press.

Tang, H. ed., 2000. Winners and losers of EU integration: policy issues for Central and Eastern Europe. World Bank Publications.

Export

Brander, J.A. and Spencer, B.J., 1985. Export subsidies and international market share rivalry. Journal of international Economics, 18(1), pp.83-100.

Collie, D., 1991. Export subsidies and countervailing tariffs. Journal of International Economics, 31(3), pp.309-324.

Agri

Parikh, K.S. and Suryanarayana, M.H., 1990. Food And Agriculture Subsidies: Incidence And Welfare Under Alternative Schemes. Indira Gandhi Institute of Development Research-.

Jensen, N.M. and Shin, M.J., 2014. Globalization and Domestic Trade Policy Preferences: Foreign Frames and Mass Support for Agriculture Subsidies. International Interactions, 40(3), pp.305-324.

Ver

Harris, R., 1985. Why voluntary export restraints are’voluntary’. Canadian Journal of Economics, pp.799-809.

Feenstra, R.C., 1984. Voluntary export restraint in US autos, 1980-81: Quality, employment, and welfare effects. In The structure and evolution of recent US trade policy (pp. 35-66). University of Chicago Press.

Berry, S., Levinsohn, J. and Pakes, A., 1999. Voluntary export restraints on automobiles: Evaluating a trade policy. American Economic Review, pp.400-430.