What is TRADE?
The voluntary exchange of goods and services among people and countries.
Trade and voluntary exchange occur when buyers & sellers freely and willingly engage in market transactions.
When trade is voluntary and non-fake, both parties benefit and are better off after the trade than they were before the trade.
Free Trade VS. Trade Barriers :
Nations can trade freely with each other or there are trade barriers.
Free Trade: Nothing hinders or gets in the way from two nations trading with each other.
Sometimes countries complain about trade. They say that too much trade cause workers to lose jobs. Therefore, countries sometimes try to limit trade by creating trade barriers.
Should Countries Create Trade Barriers That Limit Trade?
It is true that some workers in certain industries may be hurt by trade.
For example, some US clothing workers have had to change jobs during the past 30 years because many clothes are now imported from other countries.
However, this trade allows people in the US to buy quality clothing imports at good prices, which results in a higher standard of living for people in the US and for our trading partners.
For this reason, most economists agree that it is good to let countries trade as much as possible.
Economic Trade Barriers:
The most common types of trade barriers are tariffs and quotas.
A tariff is a tax on imports (imports are goods purchased from other countries and exports are goods sold to other countries).
A quota is a specific limit placed on the number of imports that may enter a country.
Another type of trade barrier is an embargo.
A complete trade block for a political purpose
Quotas :
A quota is a limit on the amount of goods that can be imported.
Putting a quota on a good creates a shortage, which causes the price of the good to rise and makes the imported goods less attractive for buyers. This encourages people to buy domestic products, rather than foreign goods.
Tariffs :
A tariff is a tax put on goods imported from abroad
The effect of a tariff is to raise the price of the imported product.
It makes imported goods more expensive so that people are more likely to purchase domestic products.
EXAMPLE: The European Union removes tariffs between member nations, and imposes tariffs on nonmembers.
Tariff Barriers
Barriers in the form of duties, taxes, quotas etc.
Tariff tax levied on goods.
Tariff levied on export is called export tariff and levied on import is called import tariff.
Tariff levied on goods that pass through nation is called transit tariff.
Import tariff is most commonly used.
Because of this barrier, imports decrease and price of imported goods increase.
It boosts demand of domestic products.
Why impose?
revenue collection, protection of domestic industry, political control.
Types of Tariffs:
On the basis of Purpose:
On the Basis of Origin and Destination:
On the Basis of Country-wise Discrimination:
1) On the basis of Purpose:
Ad Valorem Duty:
Levied as the percentage of the total value of the imported common duty.
Specific Duty:
Levied per physical unit of the imported commodity.
Compound Duty:
Levied a percentage ad valorem duty plus a specific duty on each unit of the commodity. Eg. 1 lac + 10% of the price.
2) On the Basis of Origin and Destination:
Single Column Tariff:
A uniform rate of duty is imposed on all similar commodities irrespective of the country from which they are imported.
Double Column Tariff:
Two different rates of duty have been imposed.
Triple Column Tariff:
Two or more tariff rates are levied on each category of commodity.
3) On the Basis of Country-wise Discrimination:
Single Column Tariff:
A uniform rate of duty is imposed on all similar commodities irrespective of the country from which they are imported.
Double Column Tariff:
Two different rates of duty have been imposed.
Triple Column Tariff:
Two or more tariff rates are levied on each category of commodity.
Who Gain from Tariff?
Government of the importing country earns in the form of the revenue.
Industries of the importing country would find market for their products as the imported goods will be expensive.
Jobs in the domestic markets are saved.
Business for the ancillary industry, servicing, market intermediation etc. is also protected.
Who are adversely affected?
Consumers
Industries of the exporting country.
Benefits of Trade Barriers :
Most barriers to trade are designed to prevent imports from entering a country.
benefits:
protect homeland industries from competition.
protect jobs.
help provide extra income for the government.
Increases the number of goods people can choose from.
Decreases the costs of these goods through increased competition .
Costs of Trade Barriers :-
Tariffs increase the price of imported goods.
Less competition from world markets means there is an increase in the price.
The tax on imported goods is passed along to the consumer so the price of imported goods is higher.
Non- Tariff Barriers :
Non-Tariff measures include all measures, other than tariffs, the effect of which is to restrict imports, or to significantly distort trade.
Different Types of Non-Tariff Barriers:
(1) Specific Limitations on Trade:
1.Quotas
2.Import Licensing requirements
3.Proportion restrictions of foreign to domestic goods (local content requirements).
(2) Customs and Administrative Entry Procedures:
1.Valuation systems
2.Antidumping practices
3.Documentation requirements
4.Fees.
(3) Government Participation in Trade:
1.Government procurement policies
2.Export subsidies
3.Countervailing duties
4.Domestic assistance programs.
(4) Charges on imports:
1.Prior import deposit subsidies
2.Administrative fees
3.Special supplementary duties
4.Import credit discriminations
5.Border taxes.
(5) Others:
1.Voluntary export restraints
2.Monetary Barriers
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