International Trade Tariff and Export Subsidy

688 Words3 Pages
International Trade Introduction Objective of this essay is to discuss the international trade, tariff and export subsidy. The essay uses the Ricardo-Viner-diagram to illustrate tariff and export subsidy. International Trade, Export Subsidy and Tariff International trade is an exchange of goods and services between two or more countries. The trade across countries represents a significant share of countries GDP (gross domestic product). Export subsidy is one of the international trade tools that countries use to encourage export of goods and services to other countries. Export subsidy is a government policy to boost exportation, and a government can provide tax relief, low-cost loans for exporters to encourage exportation of goods and services. Typically, government uses export subsidy to enhance balance of trade. On the other hand, tariffs are taxes that governments levy on imports. Tariffs are generally used to protect domestic industries against foreign competitions. In the developing countries, tariffs are used to protect aging and inefficient companies, and some countries use tariffs to protect domestic industries from foreign competitions. However, both export subsidies and tariffs influence term of trade as well as national welfare. Export subsidy and import tariffs drive a wedge between prices of domestic markets and prices of world market. Despite the objective of governments on tariffs and export subsidies, economic theory believes that both export
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