Governments often encourage
exports as a positive side effect of trying to protect the domestic producers
in their countries. The methods available therefore usually attempt to reduce
imports, which protects domestic firms and are therefore often referred to as
trade barriers. Such examles include, tariffs and quotas which have a diverse
range of effects while also reaching its goal to make diminish import markets.
Tariffs have the obvious effect of making imports more expensive. So consumers will switch to local goods and
therefore there will be more jobs created. However it goes directly against the
law of comparative advantage, because the outside goods may actually be
cheaper. This can delay or prevent structural change. If you tariff your
imports other countries may do the same back and therefore a tariff war may
occur meaning tariffs can be used as a political weapon.
The WTO is the multi-organisation
and the only global international organisation dealing with the rules of trade
between nations. It is the organisation which allows its members to set theses
duties but only to a certain level. Although their main goal is to promote free
trade and allow nation to experience gains from specialisation and trade that
the theory of comparative advantage will arise. An example of a tariff on
imports to protects a county and its native industries is the Anti-dumping
duty. The WTO rules allow its members to impose these duties if the individual
governments determine that foreign firms"dump" a product that damages
a domestic industry producing a similar product. In common usage, anti-dumping
duties are used to counteract "unfair" import pricing practices by
foreign competitors. Import quotas have the
effect of controlling the amount of goods coming in therefore supply will
increase. There will then be a gain for domestic producers as they supply at a
higher price and imports have decreased. It will protect domestic industries
and jobs.
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