International trade is a vital part of business and it influences the standard of living of the citizens of the US. There are many factors associated with international trade including tariffs, quotas, and regulatory restrictions. Tariffs are taxes which are imposed on goods that are imported into a country. Quotas are the numerical limits which are imposed on the goods which can be imported. Tariff tax imposes restrictions on the imports in efforts to raise revenue for the government that enacts those taxes.
A closer look at the US trade practice will provide clarification for the nation’s position in international trade. It is also quite evident that the US trade deficits that have occurred for the past three decades have made the worldwide financial as well as trade systems prone to accidents. Analyzing the outstanding dollar debt that has continually grown and created a significant threat to the future of the American financial system. This type of debt occurs when the amount of goods and commodities imported into the US exceeded the amount of commodities exported. Despite this unequal distribution, such a scenario indicates that the economy of the United States is strengthening. However, this is a situational position. International trade as earlier indicated, shows that a continuous trade deficit is harmful to the economy in the long run.
Effects Of Tariffs And Quotas
It is important to take to understand the effects of tariffs and quotas on the nation’s international trade practices. An economy that runs on trade deficits poses a significant danger to the economy. The need to restrict and limit the amount of commodities that are imported into the country is vital to the stability of the economy. This would be an effort to balance the amount of commodities being imported to the amount of commodities that are exported. The need to mandate a bid to strike a balance and achieve a situation where the economy does not run into debt. The US has to find the balance that benefits the economy through all aspects of international trade. In efforts to restrict import, the country in need by consider imposing heftier tariffs and quotas.
Imposing foreign tariffs can also prove to be quite detrimental to the economy of the nation. Such foreign tariffs would essentially increase the expenditure of the domestic producers. This results in selling fewer product in the foreign market. The purpose of importing and exporting is meeting the product needs for the economy at a lower price than being obtained locally. If the foreign tariffs raise the cost significantly, the benefit is no longer present. The country may be able to manufacture or produce the goods cheaper based on the high tariffs that have prevented importing.
In the case of the United States of America, it can be projected that any imposition of tariffs to China might cost the U.S producers 1.5 billion American dollars. The manufacturers reduce their production due to the diminution in demand. As a result, many jobs can be lost and the manufacturer’s position in the market challenged. The rise in jobs lost creates a negative impact on other industries as well. It can directly affect the local economy as well. The reduction in demand for client products because of the decreased levels of employment. A direct and detrimental position for the company.
Increasing foreign tariffs shows the negative effects on an economy. For the United States, reduction in exports can directly reduce the standards of living of the American citizens.
Foreign tariffs, in conjunction with other forms of market limitations, cause a turn down in the financial wellbeing of a government as well as its citizens. There is a significant need to balance the internal and external trade for the betterment of the country involved.
Tariffs can directly harm the nation that imposes them, since their expenditure outweighs their returns. On the other side of the equation, a tariffs can be an advantage to local producers who now face abridged antagonism in their local market. Reducing the competition will result in an increase in prices. This should in turn, make the sales of domestic producers to rise or be equal. The augmented production as well as price makes local producers employ more workers thus resulting to an increase in consumer expenditure. The tariffs also boost national revenues that can be used to the advantage of the financial system.
International trade shows that a continuous trade deficit is harmful to the economy in the long run. However, there are expenses to tariffs. When there is an increased tariff, the customer is compelled to either purchase a smaller amount of a particular commodity or a reduced amount of some other commodity. The increase in price in turn creates a reduction in customer revenue. Since customers are buying a reduced amount of a commodity, local manufacturers in other industries are selling fewer commodities, resulting in turn down of the financial system. The advantage caused by augmented domestic manufacturing in the tariff confined industry together with the improved government returns, and income does not counterbalance the losses caused by increased prices. We have not even contemplated the likelihood that other nations might impose tariffs on American commodities in retaliation, which would eventually be costly to the economy (Mark, 2010). Understanding the vast realms of international trade and its effects on the economy will provide a strong basis for determining the proper tariffs and taxes to impose as well as which imports and exports are vital for the nation’s survival.
- Mark, M., (2010). “Understanding Government Budgets: A Practical Guide”. A budgeting guide for Local Government.