The Contemporary Trade Environment - Term Paper Example

Name: Institution: Continued Restrictions on Free Trade It is imperative that the international trade regime established under the watch of United States after the World War II, which is now enshrined in the World Trade Organization (WTO) has been a tremendous shaper of the most open international economy in the contemporary trade environment. As observed by Pride, Hughes and Kapoor (2011), the U.S. and other industrialized economies took the lead after the Second World War to reduce protectionism in the international trade owing to shared belief and experiences that the practices was the primary cause of the Great Depression of the 1930s. The resolution to herd the world out of protectionist tendencies particularly by the U.S. stemmed from experiential belief that depressions resulting from trade restrictions not only amplified political instabilities thus cultivating war but also weakened domestic economic activities. The fight for post war trade regime led by the U.S. sought to lower tariffs and encourage each country to optimize its comparative advantage by producing goods that it can best. While tariffs have been declining and free trade increasing, however, new threats have emerged as domestic industries face stiffer competition from heightened international competition that have resuscitated protectionism at differing scales. This review details the reemergence of trade restrictions that have surfaced as the novel instruments for governments to achieve economic, political, and social cultural advantages. Restrictions to International Business Reflections from the contemporary liberalized business practices indicate that the specialization and increased international trade resulted from the post World War II trade regime advanced the efficient production of want-satisfactory goods and services globally. Moreover, international business has been incrementally expanding in tandem with the dynamics of the globalization wave. However, international governments yet continue to impose trade restrictions to gag free trade for reasons ranging from political, economic, and to some extent cultural protectionism (Bernanke, 2006). This section explores in details the discourse of continued restrictions to free trade by underlining the different types of restrictions, their underlying advantages, and concomitant demerits. Types of Trade Restrictions Economic literature continue to grow the rationale that while international governments remain enthusiastic to export more of their products abroad, they seek to cushion their domestic industries from international competition in order to achieve favorable balance of trade (Mankiw, 1998). This implies that most restrictions bear economic basis and are aimed at imports from other economies. Restrictions on Imports As aforementioned, governments tend to work out favoritisms that safeguard the balance of payments, which often involves discouragement of imports from foreign countries through trade restrictions. In this context, the most invoked restrictions come in forms of tariffs and quotas. A tariff is an importation tax that a government imposes on imported goods, which makes the prices of the foreign goods increase (Medura, 2010). For example, although the U.S engineered the liberalized trade regime after the World War II, it maintains some degree of protectionism through imposition of tariffs in some industries. Some American industries: apparel and firm products, however, have historically received protection against international competition through import taxation on related products. In addition to tariffs, international governments are increasingly manipulating the flow of imports into their markets through domestic policy instruments that cap the quantity that can be imported. The quota system has imperatively been used to regulate free trade on a variety of goods by different governments. Accordingly, the increased interests by governments to protect the advantageous characteristics of their industries maintain barriers to international free trade despite the ubiquitous gestures that international treaties are driving reductions in the trade bottlenecks (Taylor, 2006). Restrictions against Dumping Governments recognize trade restriction as one of the vital tools for regulating quality of market goods as well as protecting their grappling industries. Economic restrictions are invoked in the event where some governments offer loan their firms to produce cheaper goods that they export to sell at low prices compared with similar products in countries whose firms do not receive any subsidies. For example, many Chinese firms are known to receive cheap factors of production from the government for as long as their output is exported. The implication of this practice is that they produce goods cheaply that they are able to sell at low prices thus garnering larger market share abroad (Medura, 2010). The dumping practices have been a cause for restrictions on free trade as governments seek to protect their domestic firms. Environmental and Labor Restrictions In the contemporary international economic environment, the environment and the employment concerns perturb every government across the globe. This premise underscores the purpose of trade restrictions as governments pursue health environment agendas and the reduction of unemployment. As provided by Hanison (2010), the international community is increasingly pegging trade cooperation guarantees on the reverence for the conservation and preservation of natural resources. However, many emerging and developing economies notably China fear imposition of environmental restrictions because they result in increased production costs for domestic economies. Trade restrictions based on environment can though be instrumental in driving trade partners to promote sustainable development. Labor laws are not only instruments of instilling fundamental human and child rights but also potential trade bargain objects. Essentially, countries that have more restrictive labor laws are less favorable for low cost manufacturing in that labor extends expenses. However, restrictive labor laws are essential in protecting social cultural components of the society through safeguarding human rights and freedoms. Embargoes In the context of global trade, full liberalization remains a daunting challenge for many governments. Governments completely halt trade with a particular country (embargo) or exchanging a particular product with a trade partner because of a variety of reasons. In particular, governments use embargoes as political weapons that aid coerce the weaker government to conform to a predefined requirement or stop it from producing some undesired goods. For example, the unanimous restrictions on oil importations from the Islamic Republic of Iran by several developed economies evidences a use of an embargo to achieve a geopolitical end. Accordingly, Schaffer, Filiberto and Earlie (2009) cites poor political relations as the primary cause for the trade restrictive embargoes activated by the U.S. against Iran and North Korea. National Security Laws Governments especially in the industrialized countries are increasingly lifting country security laws as trade restrictive instruments especially when national security or the security of the international community is at stake. This instrument has increasingly surfaced as a conduit towards achieving political interests. Some political affiliates especially in the U.S. have repeatedly presented that some trade restrictions be instigated against international trade and foreign ownership in situations where the national security is compromised (McEachern, 2011). For example, advanced economies are increasingly becoming wary of emerging powers that are showing indefinite thirst for development of weapons of mass destruction and nuclear weapons in particular. In this context, international powers are seen amalgamating their geopolitical influence to restrict trade with enemy states in order to deprive them of resource capacity. National security law has been deployed to advance geopolitical interests as is evinced through different restrictions in the American foreign policy. Although the neighboring Brazilian industries have the capacity to produce relatively cheaper military hardware, the United States has been ardently restrictive in purchasing planes from them lest their be a compromise on the national security. Summarily, despite the unparalleled changes imparted on the international trade by liberalization trade treaties, many governments continue to implement trade restricting policies that grant the domestic firms an advantage in the fight against international competition. This leads to the disguised truth that the playing filed in the global market is yet to become fully leveled. Advantages of Trade Barriers As has been made apparent the other sections of this paper, many almost every government exercises some form of trade restriction for economic, political, or other national interests. Although import-based taxes feature chiefly as the most common form of trade restriction, and embargoes for political goals, there is a variety of reasons underpinning curtailing of trade freedom globally (Arnold, 2008). Restrictions to trade appear to remain around permanently as they provide governments across the globe an amble option of attaining a nation’s balance of payment, which economists and international business entities consider essential for harnessing confidence for a national monitory system. The apparent advantage of different forms of trade restrictions revolve around the protection of fledging domestic industries. Protectionist trade barriers help a nation protect and nurture its weak industries to attain the resilience necessary for success in international competitive business. Accordingly, temporary restrictions are deemed necessary to give infant industries an opportunity to grow and become independent (Rivera-Batiz, 2003). However, temporary protection has been cited in some occasions as a basis for the wrong industrial footing in situations where some industries, such as the U.S apparel, fail to metamorphose thus remaining under permanent protection. Restrictive trade policies are being utilized by governments to protect national security, which is achieved through regulation of trade in the category of goods considered insecure. Additionally, countries are imposing trade restrictions to technological products that require protection from potential enemies. For example, strategic and defense technology has been an object of stringent trade regulation in that governments prevent exportation to unfriendly countries (Taylor & Weerapana, 2007). Restrictive trade policies are advantageous in keeping security advancements of a country guarded and hence the security of the global community. Although international treaties continually allege insurmountable gains from liberalization of global markets, trade restrictions continue to be the only options through which governments can certainly protect public health. As observed by Trebilcock, Howse, and Eliason (2012) governments can deploy embargoes on products deemed dangerous or unhealthy hence safeguarding the health of citizens. Worthy noting also is the importance of trade restrictions in leveraging bargaining balance. The restrictive policies give a country an ability to retaliate to adversarial trade restrictions from a trade partner. In this context, a country whose exports are slammed extreme tariffs by another nation reserves the capacity of responding by imposing heavy taxes on imports from that country. It is imperative that restrictive trade policies are crucial instruments via which governments are able to protect domestic jobs. Essentially, in addition to using trade barriers to protect fledging industries, governments safeguard employment interests of its citizens through limitation of imports. Disadvantages of Trade Restrictions Although trade restrictions appear to be advantageously sustained by international governments for self-protection, they have temporal and long-term economic consequences for the restricting government at the world trade arena. For instance, restrictions result in increased prices for consumer goods primarily because of imposition of tariffs or elimination of foreign competition (Boone & Kurtz, 2009). It is apparent that trade restrictions limit the diversity of consumer goods available within the restrictive country, which effectively deprives citizens of right to choices. This implies that the elimination of selected foreign products from the local market, and the burdensome high prices that importers must charge for products that are still imported impairs the consumer’s choice (Cherunilam, 2008). It is common economic knowledge that if an industry cannot sustain itself and has to rely on the altruistic government policies for survival, it is worthy letting countries with competitive advantage to produce the goods in that category (Carbaugh, 2011). This implies that restrictions result in misallocation of international resources as much effort is channeled toward the protection of weak industries that results in inefficient use of limited resources. Worthy mentioning in this section is that trade restrictions instigate the burden of job loss within and without the restricting country. The restriction of imports by one country definitely triggers cutbacks that stem from the export oriented industries. Trade restrictions result in tremendous effect on the composition of employment as well. Conclusion This report revolves around the discourse of trade restrictions that appear to have been sustained despite the post Second World War effort by the U.S and partners in liberalizing global economy. Governments invoke trade restrictions for various reasons: political, economic, and social cultural protectionism. Primarily, trade balance has been the reason for tariffs across the globe, and governments often use embargoes as political weapons. Trade restrictions have numerous advantages for the restricting country and temporal and long-term implications in some instances. In summary though, the international trade is continually growing amidst the aforementioned restrictive trade types. Although the U.S. and other industrialized trade partners had cited trade restrictions as the main causes of severe economic depressions, the meltdowns continue to wreck the global economy even with least prevailing trade restrictions. This implies that more research in this context is warranted to provide a clearer insight. References Arnold, R.A. (2008). Economics. (8th ed.). Mason, OH: Cengage Learning. Bernanke, B. (2006). Principles of microeconomics. (2nd ed.). London, UK: Cengage Learning. Boone, L.E., & Kurtz, D.L. (2009). Contemporary business 2010 update. (13th ed.). Hoboken, NJ: John Wiley & Sons. Carbaugh, R.J. (2011). International economics. (13th ed.). London, UK: Cenagge Learning. Cherunilam, F. (2008). International economics. (5th ed.). New Delhi: Tata McGraw-Hill Education. Hanson, D. (2010). Limits to free trade: Non-tariff barriers in the European Union, Japan, and United States. New York, NY: Edward Elgar Publishing. Mankiw, N.G. (1998). Microeconomics. 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