Ms Tradebarriers 091022074652 Phpapp0ms2Presentation Transcript
Involves the exchange of goods or services between countries
This is described in terms of
Exports : the goods and services sold to other countries
Imports : the goods or services bought from other countries
Free Trade : Nothing hinders or gets in the way from two nations trading with each other.
Trade Barriers : Trade is difficult because things get in the way.
There are costs and benefits related to free trade as well as trade barriers.
Free Trade Vs. Trade Barriers
When nations specialize and trade, total world sales are increased
Companies can produce for foreign markets as well as domestic markets
This means there is potential for making more money as there are more markets to sell goods or services in
More variety of goods are available from all over the world (not just from the home country)
Prices of goods are decreased through increased global competition
Benefits of Free Trade
The domestic country can lose money because more people are buying foreign goods (cheaper)
Example: In the U.S., people might want to buy a foreign automobile like a Honda or Toyota instead of an American made car
Less money will go into the domestic market place and this can cause factories to be closed and jobs to be eliminated
Cons of Free Trade
Trade barriers are things that hinder or get in the way of trading
Cultural barriers : language, currency,
2. Physical barriers : mountains, deserts,
3. Economic barriers : government rules that tax, limit, or block international trade between countries (tariff, quota, embargo)
What are Trade Barriers?
The most common trade restrictions are:
tariffs —taxes on imported goods
2. quotas —limits on the quantity of goods that are imported
3. embargos -- a complete ban on trading between countries
3 Economic Trade Barriers
A tariff is a tax put on goods imported from other countries
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 products produced in the home country
EX) The European Union removes tariffs between member nations (cheaper goods), and imposes tariffs on nonmembers (more expensive goods)
What is a Tariff?
A quota is a limit on the amount of goods that can be imported from another country
Putting a quota on a good creates a shortage, which causes the price of the good to rise. Consumers are less likely to buy this good because it’s now more expensive than the good produced in the home country.
Quotas encourage people to buy domestic products, rather than foreign goods (boosts country’s economy)
EXAMPLE: Germany could put a quota on foreign made shoes to 10,000,000 pairs a year. If Germans buy 200,000,000 pairs of shoes each year, this would leave most of the market to German producers.
Government orders that completely ban trade with another country
If necessary, the military actually sets up a blockade to prevent movement of merchant ships into and out of shipping ports.
The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically and thus undermine the political leaders in charge.
EXAMPLE: the United Kingdom has placed an embargo on a Chinese toy-making company because they were using lead-based paint in their toys. UK no longer trades with this company.
EXAMPLE: US placed an embargo on Cuba after the Cuban Missile Crisis (still in effect today).
Most trade barriers are designed to prevent imports from entering a country
Trade barriers provide many benefits:
protect homeland industries from competition
help provide extra income for the government (boosts economy)
Increases the number of goods people can choose from.
Decreases the costs of these goods through increased competition
Benefits 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.