Principles of Macroeconomics

Posted: October 17th, 2013

Principles of Macroeconomics

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Principles of Macroeconomics

Trade restrictions are barriers put in place to control the flow of goods between countries, which in many cases results to protectionism. Trade restrictions are sometimes seen as a barrier to prevent one country from selling its goods in another country, while the country putting restrictions views it as a way of protecting its goods. Trade restrictions include tariffs placed by governments, import quotas, and Product Standards (Brux, 2010).

Tariffs are the most common types of trade restrictions, which means some type of tax imposed on imported goods in order to ensure their prices do not pose a threat to the domestic products. The aim of tariffs is to increase the cost of imported goods within the domestic markets so that the domestic goods are relatively cheaper than the imported ones. This way, the domestic goods are able to compete better than the imported goods. This happens when the imported goods can be cheaper than the domestic goods. Import quotas on the other hand are measures by a government to regulate the amount of goods a country can import. The government seeks a specific level that importers should not exceed. The rest of the supply to meet the demand will be provided by the domestic products. This way, the domestic producers will be protected. The third type of trade restriction is product standards where the government puts a certain standard level that countries exporting to it have to meet. This is usually either put in place to ensure that the exporter will have to incur more costs upgrading her product standards, or quit if they cannot meet the standards (Pride, Hughes & Kapoor, 2012).

The most effective trade restriction among the three restrictions is the tariff. A tariff will be effective in all circumstances, since price of imported goods are controlled. Higher tariffs reduce demand for the imported goods hence less goods are imported. Lower quality goods can be eliminated through imposing a tariff that would render them non-profitable since they will not be bought at the same price as the higher quality ones. Therefore, tariffs are the most effective trade restrictions.

References

Brux, J. M. (2010). Economic Issues and Policy. New York, NY: Cengage Learning.

Pride, W. W., Hughes, R. J., & Kapoor, J. R. (2012). Foundations of Business. New York, NY: Cengage Learning