|← Principles of Microeconomics||The People’s Money →|
The need for convenience in exchange for goods and services between nations, states, and countries exceeds any other desire. It is for this reason that international trade policies have become important tools in guiding trade among nations. International trade can be defined as the process of exchanging goods, services, and capital across various countries all over the world. The trade is facilitated by the need to share domestic products in order to counter the rising need for the same product in other countries where it does not exist.
The aim of this paper is to explore the various types of international trade policies such as currency unions, tariffs, quotas, free trade agreement/areas, embargoes and trade sanctions. Such policies are also referred to as commercial policies. Their main objective is to set rules and regulations intended to control international trade flow. In this case, the paper will discuss the importance of international trade policies, and how nations and states benefit from the same. In addition, it will look into how these policies affect and influence a country’s abilities to exchange goods and services with other nations.
A couple of centuries ago, the world realized that there was a great need for the better, effective and free exchange of goods and services across the borders. It was identified that the prevailing global peace and stability was a result of the great need to allow the peaceful exchange of commerce and trade between nations. Understanding the concept behind international trade policy requires that one will be conversant with some terms. These terms will not only assist one in comprehending how international trade is conducted but also understand some of the factors that influence the same. These terms are discussed below:
Tariff: This refers to the tax that is charged across the borders. Any product or service that will be transacted across the borders is liable for a certain tax in the form of a tariff. Most probably, tariffs are imposed on products and services that are imported to a country; however, it is only on rare occasions that exports will attract this type of tax. Tariffs categorized into two include Ad Valorem tariffs calculated in percentage in terms of the price of the goods that were imported. Specific tariffs, as the word suggests, is the specific amount charged by the government on imported goods.
Quotas: Governments impose quotas to restrict and limit the number of goods imported to a country. The restriction is not fixed, it varies according to time and the number of goods a country requires at the time.
Free trade agreements/area: It is a form of economic integration whose objective is to increase trade between two or more nations. In this case, it encompasses trade blocs whose integrated nations have come to an agreement to allow free movement of people between them in order to reduce trade barriers.
Currency unions: This type of international policy allows two or more states to share the same currency. The three types of currency unions are “informal, formal, and formal with common policy”. Informal currency union involves the unilateral application of currency from a different country (foreign currency). Formal currency union allows the usage of foreign money by virtue of the multilateral or bilateral contract. Formal with the common category is the policy that allows multiple countries to utilize one generalized monetary policy.
Embargoes: It is a policy that completely imposes a barrier to the importation of products from another country. They are particularly imposed during war or when there is a breakdown in diplomatic relations.
Trade sanctions: This policy is applied as a penalty by a country or a group of countries to one country or to a number of countries. These penalties may be imposed on trade barriers or denial of financial transactions.
Subsidies: The aim of this policy is to improve the exporting of goods and services across the borders. In order to improve export, producers and marketers of locally manufactured goods are given financial assistance to help them export goods with a lot of ease and convenience. The main objectives of subsidies are to sustain or rather maintain economic activities that are at a high risk of facing losses or lower the net price of production.
Benefits and Implications
The knowledge of international trade policy was essential in helping one comprehend how nations benefit from the same. In addition, familiarizing oneself with international trade policies was the only best way that one could understand the economic theories of most world issues. For that reason, the various benefits of international trade policies are highlighted below.
To start with, there are no ways that nations, states, and countries could have appreciated each other if international trade policies did not exist. Therefore, the theory of international was crucial in helping countries understand that if they were to foster and uplift various developments within their borders they needed to recognize and appreciate each other’s existence (McGovern, 2014). Through imposing tariffs, embargoes and other policies across the borders, countries were assured of protecting their domestic markets taking place in their countries. Third, imposing international policies helped greatly in increasing the exportation of certain goods, which in turn helped to expand domestic market. Moreover, it was important in preventing the importation of certain goods, therefore, giving protection to growing and developing markets and industries as well as saving foreign exchange. Most importantly, the application of such policies was essential in encouraging the imports of most capital goods, hence speeding up not only the economic development of a country but also the social life of citizens in that particular country.
If international trade policies are effectively applied, participants countries are able to restrict and limit too much importation of goods into a country which is likely to disrupt the balance of payments or rather create an unfavorable balance of payments. Following the regulations and control of exports and imports between countries, the desired currency exchange is created. As a result, this eliminates the problem of fluctuating currencies. When states or nations decide to use the same currency, they tighten their ties and establish a free market where individuals from such countries are allowed to participate in trade in the different states bonded together by the same currency.
Recommendations and Conclusion
Before making any recommendation, I would like to agree to the fact that international trade policies are the reason as to why the world is at peace. There is no valid reason as to why a country would opt to disrupt this peace. As already evident, embargoes are meant to impose complete barriers to the exportation of goods to another country/countries. No country would find it favorable if such a policy is applied towards it. You can think of the great losses such as the country would incur if it is restricted from the exportation of a particular good that it solely depended on. The best thing about international policies is that they have come out to regulate the process of importing and exporting of goods. While that is the case, it has been ensured that a favorable balance of payment has been established that has limited currency fluctuations; this is what economics is all about (McGovern, 2014). Most importantly, the economies of many countries have been a constant rise since countries have been in a position to import goods and products they did not have from countries that had them in great quantities.
It is a recommendation that countries will continue to champion diplomatic relations. Only when countries are relating well, international trade policies will be fully functional and effective. From a defense point of view, each and every country is expected to provide maximum protection to each citizen and guards its borders. Therefore, it is a recommendation that these policies will not restrict the exportation and importation of firearms, weapons, aircraft, and petroleum. Such products are essential for any nation’s defense. Therefore, with policies that do not restrict them, every nation will be in a position to uphold its own defense rather than relying on other nations for the same. The last recommendation to make is that all countries must stick to the laid down international trade policies. While doing so, no nation should take advantage of another nation on the basis of it being superior to it. That way, the main objective of international trade policy which is to ease trade between nations would have been achieved.
In conclusion, it is no doubt that international trade is guided by some important policies that their implementation has ensured successful trading between nations across the globe. Such policies are tariffs, embargoes, quotas, subsidies, free trade agreement areas, currency unions, and trade sanctions. Up to this point, one must have come to terms with the various benefits of implementing such policies. It has come to an agreement that they foster peaceful coexistence between nations. It is the only way that nations can obtain those goods and products they did not have from nations that had the goods and products in big quantities. Lastly, international trade policies have created a platform through which nations can develop as a result of the balanced exchange of payments.
- The People’s Money
- Macroeconomics Journal
- Principles of Microeconomics
- Political Economy of Capitalism