Essay/Term paper: Consequences of trade restrictions and tariffs

Essay, term paper, research paper:  Economics

Consequences of Trade Restrictions and Tariffs


How does imposing trade restrictions affect a country's macro economic
objectives?

Nowadays all countries need to trade between themselves. Countries
always lack of some type of good and the only way they can get them is by
importing them from other countries which do produce the desired goods. However,
countries many times import products they are able of producing and now, this
isn´t a matter of need; it´s a matter of taste in order to give the consumers
the possibility to choose.

Both imports and exports contribute, in different ways, to the
development of a certain economy, for example the Peruvian one. Nowadays, Peru
has an open economy which allows importing and exporting. When a country imports
any product it can be because it doesn´t produce it or because it want´s to give
greater variety to certain areas of the market. This last case should be like a
stimuli for national producers to produce more and with a better quality and to
find ways of having lower costs of production. This aims come to light because,
as foreign products enter the market, they may be of a better quality and even
cheaper than the national ones. Now, the consumers will have more possibilities
to choose from and, it is very probbable that they will choose the cheaper and
brand new products. So, if national producers don´t do anything in order to
improve thier products, then they will be in danger of going to bankruptcy. As a
result of this, the national products have to seek, as I said before, for
cheaper costs and better products.

When this occurrs, then national products are ready (or at least have
more possibilities) to compete in international markets. Supposedly, now they
should have a better quality, they should be cheaper and so, they are ready to
be exported. When products are sold at international markets, then this brings
more money into the peruvian economy; as exports are like the salary of a
country (the most important source of money), then this is very positive for the
peruvian economy because we can say that the national income has increased.

So, we have seen how having imports and exports are very benefitial for
any country. However, countries many times apply barriers to imports coming into
the country in order to protect national products. The most common type of
barrier applied are the tariffs. Tariffs are taxes applied to every imported
product which comes into the country. In Peru, for example, the tariff rate has
two values: one which is 15% of the original price (the most commonly applied)
and the other one which is 25% of the original price (rarely applied, only for
luxurious goods.) By applying this tariffs, then it may not be very profitable
to bring certain products into the country, and, in this way, the national
products are able to keep on in the same way, without worrying about having a
powerfull competence. This type of barrier may allow certain national companies
to keep on being leaders in the national market, even though their products aren´
t export quality. So, if they try to export these products, then they won´t have
much luck in foreign markets because here, in their local markets, they haven´t
developed really good and relatively cheap goods.

However, nowadays there are many international organisations, like NAFTA,
which aim at having a 0% tariff on all the member countries. In this way, there
will be no additional value added to the imported products and, so, if national
companies aren´t well prepared, then they won´t be able to compete and, so, they
will go to bankruptcy. I think that this type of agreements are good for the
companies and their local countries because in the future, where international
trade will be even more important than what is now, any enterprise which isn´t
prepared to compete internationally won´t be able to survive. If these non
tariff measures start to be applied at the present, then companies will get used
to having constant and competent competence and, therefore will not have any
problems in the future.

In conclusion, I think that countries which insist on applying tariffs
are preventing themselves and their own companies from preparing for the future.
In the long run this will be negative for both the country and the companies
because they will not be likely to develop the adequate techniques for competing
internationally and, so, their products won´t be able to be exported and, as a
result, the country´s "salary" (money gained by exporting) will be greatly
reduced.