International Trade Policies and Strategies
International economist Robert Carbaugh addresses a number of problems with export and import tariffs in the book. According to American regulations, tariffs were initially designed to raise money, but as taxes rose, the regulations shifted to a focus on protecting. As a result, tariffs increased, which made the economy worse. Due to this, the nation decided to design and carry out bilateral trade agreements with other agreements, reviving the declining international trade. Trade between nations has become more multilateral. By implementing trade agreements and legally binding promises by party governments, several accords were created to ensure transparency and predictability in trade. for example, GATT (general agreements on tariffs and trade) specifically reduced tariffs and established a code of conduct that ensured fair trade which in turn greatly improved multilateral trade. The world trade organization(WTO) kept all the regulations. There are also other American outside laws that protect the citizens' intellectual properties and trade adjustment assistance that assists producers that have suffered from effects of comparative advantage.
Challenges Faced by Developing Countries
In the developing countries, there are several problems associated with the policies. Some include unstable prices and diverse exports. They concentrate on few primary exports and the fluctuating prices during recessions make planning difficult. This necessitated the need for aid to these countries through different channels by this international organizations. The main channels used are world bank and IMF. The World Bank gives loans and grants for development while the IMF offers solutions to the balance of payments problems. The two growth strategies used by developed countries to assist developing countries include, importing substitution strategies which creates barriers to imports and protect local produces on the goods that compete with the imports. Another strategy is using an export led strategy which promotes growth through establishing industries that produce goods for export. Most countries use a mix of both strategies in their foreign policy and initiatives have been developed, and different organizations and rules have been put in place to create a fair-trading environment.
A Summary of Chapter Six and Chapter Seven
In his book, Carbaugh analyzes international laws on tariffs and export and import laws in different countries starting with American, Japan, and the developing countries that are fast rising to the international economic scene. The following is a synopsis of the two chapters with a keen emphasis on the laws and strategies that have shaped the international environment in the last century (P. 180-265).
American Trade Regulations
Initially tariffs in America, in years before 1930, were used to collect revenue, but as the economy's tax base increased to capture incomes and payroll, the regulations turned towards protectionism. The key tariffs in this period were Tariff of Abominations meant to reduce the budget surplus. Protectionism was meant to nurture local infant industries and protect them against foreign competition. With protectionism, tariffs started to rise especially during the civil wars where revenues from tariffs were used to finance the war which rose further during the First World War. The Smoot- Hawley Act of the late 1920s saw the rise in tariff to a high of 53%, that caused retaliation from 25 trading partners and the situation worsened during the great depression that saw a collapse in international trade. Due to the worsening state of the economy, The Smoot act was removed in 1932 and America liberalized its market though cautiously in what was termed as Reciprocal trade agreements act. The Congress gave the president the power to form bilateral agreements with other governments, and this was the start of reviving international trade that had diminished with the protectionist laws earlier implemented.
Multilateral Trade and World Trade Organization (WTO)
With bilateral agreements in place, the next logical step was multilateral trade among countries; that was meant to restore order to international trade after the world wars. In 1947, several countries decided to form general agreements on tariffs and trade (GATT) that would reduce barriers to trade among the party states and facilitate trade. The agreements aimed at reducing discrimination among members through the Most Favored Nation principles (MFN) and the national treatment principles that aimed at reduced discrimination of goods while trading and after the goods started circulating in the economy. GATT also ensured transparency and predictability in the trade by enforcing trade agreements and binding commitments by party states. GATT ensured reduced tariffs and established a code of conduct that ensured fair trade this greatly improved multilateral trade. During the 1980s, the GATT system started losing its influence as member started to return to bilateral agreements. There were also concerns that the system did not capture some important trade issues such as agricultural related issues, property rights and problems associated with developing countries. The shortcomings in GATT led to the formation of the World Trade Organization (WTO). WTO kept all the regulations made by GATT, but it expanded its influence to property rights, agriculture, and services and made provisions for developing countries. Other than maintaining trade, WTO has a dispute settlement that encourages tariffs retaliation, but there have been concerns that this puts small economies at a disadvantage. This ineffectiveness to small economies, concerns that WTO reduces sovereignty and accusations that enhanced trade destroys the environment has been the main challenges faced by WTO.
Other American Trade Regulations outside WTO
There are other forms of regulations outside WTO that US citizens can invoke to ensure fair trade. To ensure fair trade for all parties engaged, America has safeguards (Escape clause), but this needs a presidential action and therefore not a popular law. For protection against foreign exports subsidies, there are countervailing duties that can be imposed to protect local producers against cheap imports due to subsidies abroad. Anti-dumping duties are more popular than the safeguards and countervailing duties because they are easier to apply and easily get a response although one has to make a request, prove there was dumping and that the dumping has caused material harm. There are also laws that protect the citizens' intellectual properties and trade adjustment assistance that assists producers that have suffered from effects of comparative advantage.
Japan Trade Policies
Japan is a developed country that has concentrated on producing high-end technological products such as cars and ships. Its trade policies are enacted by the ministry of economy, trade and industry. Most of its policies target support of their industries specifically using the strategic trade policy that empowers the government to assist the local industries and shielding them from competition especially in the 1980s.
Developing Countries Trade Policies and Concerns
The main problems associated with developing countries are unstable prices and limited diversity in their exports. Most developing countries concentrate on a few primary exports for instance 90% of Nigeria's exports are crude oil related products. The prices are unstable because they keep fluctuating especially during recessions which make economic planning difficult. The developed countries have protectionist tariffs that make trade hard, and the problem is worsened by deteriorating terms of trade and an international trade environment skewed against them. In the past, the developing countries have attempted to stabilize the prices through international commodity agreements (ICA), the creation of buffer stocks and multilateral agreements with varying degrees of success. Oil producing countries in the developing countries have not been affected by unfavorable trade especially those that are members of OPEC due to monopoly prices maintained by the cartel. This number, however, is the minority, and this has necessitated the need for aid to the countries through different international organizations. Two of the main channels of aid are the Breton Woods institutions: World Bank and IMF. World Bank gives loans and grants for development while the IMF offers solutions to the balance of payments problems. Other means of reducing the unfavorable trade have been the generalized system of preference where advanced nations extend nonreciprocal tariffs to exports from developing countries, but this is on a voluntary basis. There are critics who question whether trade promotes the growth of developing countries, but evidence has proved that it depends on what the aid was used for. There are two growth strategies available to developing countries that have been used by developed countries.
Import substitution strategy that creates barriers to imports to protect local produces that produce goods that compete with the imports.
An export-led growth strategy that promotes growth through establishing industries that produce goods for export and this strategy is preferred in modern literature.
To show these strategies three developing countries and one regional aggregate (East Asian economies) have been mentioned as good case studies in industrial policy and economic growth. East Asian economies have capitalized on their natural resources, culture and good policies to ensure growth and development. They followed the 'flying geese' method of development where they followed the trajectory of their economic leaders. China started as a communist economy but due to problems associated with socialist economies, China changed strategy to a more market-oriented market and has grown to become the second-largest economy in the world banking on cheap labor and resource availability. India, on the other hand, has concentrated on the service industry way from china's labor intensive manufacturing strategy and has also grown to become a major player in the global market in service provision and in the automotive industry. Finally Brazil, the largest Latin American country has grown to become the seventh-largest economy in the world and serves as a good case study in its regulations. In all the four countries, initially, they all implemented protectionism policies favoring import substitution strategies after the world war to support infant industries. Their economies suffered from the balance of payments problem and reduced growth associated with protectionism until recently where they have all liberalized their economies and employed export-led strategies. This is the current global trend where most countries use a mix of both strategies in their foreign policy.
Conclusion
International trade has come a long way, starting from bilateral trade to the current multilateral trade policies. It has seen the establishment of various institutions to create a fair trading environment. Most countries initially had protectionist trade regulations that have continually been done away with and adopted more liberalized market policies. Trade has not been favorable to developing countries, but initiatives have been developed, and different organizations and rules have been put in place to create a fair trading environment.
Works Cited
Carbaugh, Robert J. International economics, fifteenth edition, Robert J. Carbaugh.
Southbank, Victoria: Thomson/South-Western, 2015. Print.
