Trade in the global economy (voluntary exchange of goods and services) only occurs when all the parties in the trade expect to gain from the business. There cannot be any trade if both parties do not stand to gain in the event of the trade. The different needs of the trader’s drive trading. Besides, the interactions of the buyers and sellers lead to the concept of the market. The market affects the prices of the goods and services. Price is essential in any market as it gives the buyers and sellers the incentive to trade. The prices influence the demand and the supply of the commodities in the market. In any market, competition plays a predominant role in the market as it impacts the prices and eventually the demand and the supply of the goods. The government can also interfere with the global trade by imposing trade restrictions.
Trade restrictions and their impacts
In international trade, exports refer to the goods sold to foreign countries, whereas imports refer to products from foreign nations consumed locally. States impose trade restrictions because of various reasons such as promote local trade, protect local investors among others. Some common types of trade restrictions include subsidies, standards, quotas, embargoes, licensing requirements, and tariffs
Tariffs
Tariff refers to a tax imposed on the imported goods. The primary purpose of duties is to increase the price of the imported goods. As a result, this reduces the competition that would have been caused by the imported products because of their low rates. The tariffs form a part of the government revenue. There are two main types of duties: Protective tariffs and Revenue tariffs. The former is intended to protect the local industries from foreign competition whereas the latter is designed to raise revenue for the government. Although most of the times each tariff ends up achieving all the goals.
Quotas
A quota can be conceived as a protective action of the government. Quotas entail putting a limit on the amount of the imported goods. When a threshold is placed on the amount of the imported goods; this causes a shortage in the supply of that commodity. Consequently, this leads to a rise in the price of that commodity because of the law of supply and demand. The local producers will, as a result, increase the cost of their goods and increase their productive capacity. Quotas are often aimed at promoting local industries by leaving a particular section of the local market to the local producers.
Embargoes
Embargoes are instituted for political reasons instead of economic reasons. Embargoes stop exports and imports to other countries. They are usually exercised in the form of the trade licenses. When a nation wants to effect an embargo, it will not issue trade licenses to traders from a particular foreign country. The bans can also be used to regulate the local agricultural sector by preventing the prices of farm products from rising by stopping the export of agricultural produce.
Standards
Standards are often understood to represent quality. Standards refer to the government laws and regulation standards used to restrict the imports. The most common measures are the setting of safety and health standards for imported goods at a higher level than those of the imported products. The move is the most commonly trade restriction method used by countries, and it protects local industries.
Subsidies
Unlike tariffs which represent a tax imposed on a particular commodity; subsidies entail the government giving grants to local industries to boost their growth. The local industries by receiving the subsidies can charge lower prices for their products than the foreign producers.
