Trade Barriers of Foreign exchange .pptx

Trade barrier

1. International Trade Barriers

2. The Political Reality Of International Trade Free trade occurs when governments do not attempt to restrict what citizens can buy from another country or what they can sell to another country While many nations are nominally committed to free trade, they tend to intervene in international trade to protect the interests of politically important groups Promote the interest of key domestic producers

3. Instrument of Trade policy There are seven main instruments of trade policy Tariffs Non- Tarrifs Subsidies Import quotas Voluntary export restraints Local content requirements Antidumping policies Administrative policies

4. Instrument of Trade policy 1.Tariffs: Taxes levied on imports (also sometimes on exports) To protect domestic producers from foreign competition by raising the price of imported goods To produce revenue for the government Specific tariff : fixed charge for each good imported Ad valorem tariffs: levied as a proportion of the value of the imported good

5. Instrument of Trade policy 2. Subsidy: Government payment to domestic producers It can take many forms: Cash grants, low-interest loans, tax breaks, equity participation, government purchases Subsidies help the domestic producers to Compete against cheaper imports Gain export markets 3. Import Quota: restrict the quantity of some good that may be imported into a country Tariff rate quotas - a hybrid of a quota and a tariff is applied to imports A quota rent - the extra profit that producers make when supply is artificially limited by an import quota

6. Instrument of Trade policy 4. Voluntary Export Restraints Quotas on trade imposed by the exporting country, typically at the request of the importing country’s government Import quotas and voluntary export restraints benefit domestic producers raise the prices of imported goods Exporting Country impose 5. Local Content Requirements demand that some specific fraction of a good be produced domestically benefit domestic producers consumers face higher prices

7. Instrument of Trade policy 6. Administrative Polices – bureaucratic rules designed to make it difficult for imports to enter a country polices hurt consumers by limiting choice 7. Antidumping Policies Designed to punish foreign firms that engage in dumping and protect domestic producers from “unfair” foreign competition Dumping - selling goods in a foreign market below their costs of production, or selling goods in a foreign market below their “fair” market value Production cost/market cost

8. Governments Intervene In Markets There are two main arguments for government intervention in the market Political arguments - concerned with protecting the interests of certain groups within a nation (normally producers) Economic arguments - concerned with boosting the overall wealth of a nation – benefits both producers and consumers

9. Government Intervention in Markets (A. Political Arguments) 1.Protecting jobs – The most common political reason for trade restrictions Protect jobs and industries from unfair foreign competition Results from political pressures by unions or industries 2. National security Industries like aerospace or electronics are often protected because they are deemed important for national security 3. Retaliation when governments take, or threaten to take, specific actions, other countries may remove trade barriers If threatened governments do not back down, tensions can escalate and new trade barriers may be enacted

10. Government Intervention in Markets (A. Political Arguments) 4. Protecting consumers Government take regulation to limit or ban “unsafe” products. 5.Furthering the goals of foreign policy – preferential trade terms can be granted to countries that a government wants to build strong relationship Trade policy has also been used several times to pressure or punish “rogue states” that do not abide by international law or norms. 6. Protecting the human rights Try to protect or improve human rights through trade policy actions

11. Government Intervention in Market (B. Economic Arguments) 1. The infant industry argument an industry should be protected until it can develop and be viable and competitive internationally accepted as a justification for temporary trade restrictions under the WTO 2. Strategic trade policy In cases where there may be important first mover advantages, governments can help firms from their domestic firms to attain these advantages rather than allow foreignenterprises . Governments can help firms overcome barriers to entry into industries where foreign firms have an initial advantage