If the removal of trade barriers is so beneficial to international economic growth, why would a nation continue to restrict trade on some imported or exported products?

Short Answer

Expert verified

Trade restrictions are imposed to protect domestic markets & producers, consumers, for economy's forex & BOP management.

Step by step solution

01

Trade Barriers Meaning

Trade barriers are government induced restrictions on international trade, ie export & import.

These can be:

  • Tax barriers - like import tariffs & customs duty
  • Non tax barriers - like quotas and other qualitative restrictions.
02

Trade Barriers - Concept & Merits, Demerits

Removal of trade barriers is advocated on the grounds of

  • Specialisation, Economies of Scale, Enhanced global choice & efficiency, lower price, global economic gain.

However, many economies still retain trade barriers because

  • Underdeveloped and developing economies' goods are not able to compete with developed economies' goods.
  • Developing countries' small infant industries need considerable protection from global giants to flourish.
  • There is risk of dumping at lower prices, which hampers domestic emerging markets.
  • Demonstration effect & reliance on foreign goods, despite of less income & savings is detrimental to growth.
  • Foreign exchange & Balance of Payment management also sometimes require trade restrictions.

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Most popular questions from this chapter

You just overheard your friend say the following:

“Poor countries like Malawi have no absolute

advantages. They have poor soil, low investments in formal education, and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?

How can there be any economic gains for a country from both importing and exporting the same good, like cars?

France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.

a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.

b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes.

c. Identify which country has the comparative advantage.

d. How much would France have to give up in terms of tomatoes to gain from trade? How much would it have to give up in terms of green beans?

Look at Exercise 19.2. Compute the opportunity

costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.

In France it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia it takes two workers to produce one sweater, and three workers to produce one bottle of wine. Who has the absolute advantage in production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?

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