How can governments intervene in international trade? Is
this considered a positive action?
The government resort to some manner of protective measures to safeguard the national interests. Protection refers to commercial policy directed to accord protection to the home industries from foreign competition. It involves the imposition of tariffs on non-tariff restrictions on international trade. The home country may also resort to the subsidization of domestic production and exports, manipulation of exchange rates, and foreign exchange controls to protect its industries from foreign competition.
The existence of various trade barriers generally characterizes international trade. Trade barriers refer to the government policies and measures which obstruct the free flow of goods and services across national barriers. The main objectives of imposing trade barriers are;
- To protect domestic industries to certain sectors of the economy from foreign competition.
- To guard against dumping.
- To conserve the foreign exchange resources of the country.
- To make the balance of payments position more favorable.
- To curb conspicuous consumption and mobilize revenue for the government.
- To promote indigenous research and development.
Trade barriers may be broadly divided into 2; Tariff barriers and Non-tariff barriers.
Tariffs refer to the duties or taxes imposed on internationally traded products when they cross the national borders. It is synonymous with import duties. It is a very important instrument of trade protection. Tariffs may be of different types, as illustrated below:
- Tariffs based on purpose: Revenue tariff, Protective tariff, Countervailing/anti-dumping duty.
- Tariffs based on quantification: Specific duty, Ad-valorem duty, Sliding scale duty, Compound duty.
- Tariffs based on origin or destination: Export duty, Import duty, Transit duty.
- Tariffs based on the application between different countries: Single column tariff, Double column tariff, Triple column tariff.
The imposition of tariff effects an economy in different ways;
- The import duty generally has a 'protective effect' because of the increase in imported goods' price.
- ‘Consumption effect’ because of the fall in consumption due to the increase in prices.
- 'Redistribution effect' – that is redistribution of income between the consumers and producers in favor of the producers because of the increase in the price of domestically produced goods facilitated by the import duty.
- 'Revenue effect' - that is tax revenue for the government.
- ‘Income and Employment effect’ arising from the protection of domestic industries.
- ‘Anti-competitive effect’ of the protection of domestic industries.
- ‘Terms of trade effect’ arising from the improvement of the terms of trade of the country imposing the tariff.
- ‘Balance of payment effect’ brought in by reducing the volume of imports.
While tariffs are regarded as traditional barriers, Non-tariff barriers are described as new protectionism measures. The non-tariff barriers have grown considerably since the beginning of the 1980s. Over the years, they have been becoming more extensive and intensive. The different types of non-tariff barriers adopted by different countries may be illustrated below:
- Quantitative Restrictions: Import quotas, Voluntary export restraints, Orderly marketing arrangements.
- Fiscal measures: Export subsidies, Export credit, Tax concessions, and incentives on exports, Anti-dumping/countervailing duties.
- Administered measures: Safety regulations and safeguards, Health and product standards, Government procurement, State trading, Environmental protection laws, Import licensing, Monetary controls, Exchange rate regulations, Customs procedures and consular formalities, Labour Standards.
- Other measures: Dumping, International cartels, Bilateral trade agreements, International commodity arrangements.
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