Last Updated 11 May 2020

International Trade Policy Problems

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Throughout the world, countries engage in international trade every day. The result of international trade is that it produces mutual benefits among the countries that are involved. However, when a country engages in trade protection, it hurts both the domestic consumers and foreign export industries. Three arguments that are used to promote trade barriers are the national security argument, the infant industry argument, and the dumping argument. Although these three arguments have their pros, such as protecting domestic industries from foreign competitors, they also have their flaws.

The national security argument is designed to promote trade barriers by stating that free trade may develop international conflict. The advantage of having trade barriers is that it will promote autarky, or economic independence. As a country, you don’t want to become too dependent on another country for goods. Countries would be self sufficient and that would result in the protection of domestic industries. The protection of the domestic industries might sound nice, but when this happens it restricts competition by limiting availability of foreign goods.

When foreign goods are limited, it forces the domestic products price to go up, therefore causing consumers to buy more expensive products. Free trade creates more competition among producers around the world, which then lowers prices and creates a bigger diversity of goods. The infant industry argument promotes trade barriers by saying that newly industrializing countries should require a temporary period of trade protection in order to mature. It is important for industries to raise their skill level from the exporting of raw materials to becoming industrial producers of finished products.

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The protection of trade barriers would benefit these countries, but would eventually become a problem. Usually when infant industries rely on trade barriers to help them develop, they continue to use the protection even after they are mature enough to go without it. When countries set restrictions for such long periods of time like that, the economic growth begins to slow down. After a country restricts goods from other countries, the country who’s domestic products would be protected would also be similarly restricted, making it difficult for countries to export their products.

The dumping argument promotes trade barriers as a form of protectionism that allows industries to lower their prices than the domestic price or cost of production and export their products to another country. Sure, that may be good for the industry doing the “dumping”, but the result would knock out the competing industries around the world. The industries that are dumping would become huge monopolies and cause the other industries profits to go down the drain, forcing them out of the market completely. Not only does this negatively effect the economy, it also produces tensions between the nations.

These tensions could possibly lead to armed conflict. These three arguments used to promote barriers such as tariffs, quotas, and embargos help benefit domestic industries by creating economic independence, supporting infant industries as they grow, and restricting competition of foreign industries. These may be helpful, but they harm the economy as a whole by creating higher domestic prices and limiting the diversity of consumer products. Free trade however, benefits the economy by raising the competition of industries and lowering prices. Also, the diversity of goods are wealthy and it is easier for industries to export or import products.

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