Barriers to International Trade Journal 55 What is
Barriers to International Trade Journal # 55 What is the North American Free Trade Agreement (NAFTA)?
Barriers to International Trade
Restricting Trade • Types of tools used: – Tariffs (tax placed on imported goods) • Protective tariffs (a tariff that is high enough to protect less-efficient domestic industries) • Revenue tariffs (tariff that is high enough to generate revenue for the government without prohibiting imports) – Quotas (limit on the amount of goods allowed into the country) – Health Inspections
FOR OR AGAINST Two Camps: • Protectionist – People who support using trade barriers to protect domestic industries • Free Traders: – Fewer or even no trade restrictions to allow open market to decide
Arguments for Protection • Aiding National Defense – If a nation relies on others to get what they need, what would happen in a time of war? – Free traders admit this may be a valid argument • Promoting Infant Industries – New or emerging industries should be protected from foreign competition – Free traders would accept this argument only if trade barriers would be removed after a time
Arguments for Protection • Protecting Domestic Jobs – Protects domestic workers from losing their jobs to cheap foreign labor – Free traders say that domestic industry should just become more efficient and moderize to compete • Keeping the Money at Home – Limiting imports will keep meny home instead of going abroad – Free Traders point out that most American currency that is spent abroad ends up coming back to America
Arguments for Protection • Helping the Balance of Payments – Keeping our import/exports balanced or so we have a positive net – Most economists do not believe that interferring in free trade helps or justifies balancing of payments • National Pride – Protecting something that is distinctly American – It depends on how long it lasts… permanent restrictions led to inefficiency
FREE TRADE MOVEMENT • 1934 Most Favored Nation Clause – A provision that allows a country to receive the same tariff reduction that the United States gives to any third country – 1998 it has been renamed: Permanent Normal Trade Relations (NTR) • General Agreement on Tariffs and Trade (GATT) in 1947 • A challenge to the most favored nation principle has been posed by regional trade blocs such as the European Union and the North American Free Trade Agreement (NAFTA) – They have lowered or eliminated tariffs among the members while maintaining tariff walls between member nations and the rest of the world. – Trade agreements usually allow for exceptions to allow for regional economic integration
World Trade Organization • Purpose – To reduce the amount of tariffs – Eliminate import quotas • GATT Replaced by WTO in 1995 – 153 Countries are members – International trade has flourished – Stores now offer a wider variety of goods from all over the world
North American Free Trade Agreement • NAFTA 1993 – Liberalizes free trade by reducing tariffs among Mexico, Canada and the United States – It phased-out tariffs among the 3 countries over a 15 year period – Controversial • Displaced workers-some jobs would move to Mexico • Some issues occurred by not significantly – Trade has increased steadily since
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