International Trade Debate

International Trade Debate 1

International Trade Debate

Michael P. Geiger

University of Phoenix

Instructor Sarabeth Spasojevich

01/15/11

International Trade Debate 2

A tariff is a tax that one country sets on the imported goods or services of another nation. A quota is defined as a government-imposed limit on the quantity, or in exceptional cases the value, of the goods or services that may be exported or imported over a specified period of time. Quotas are more successful in restricting trade than tariffs, mostly if domestic demand for a commodity is not sensitive to increases in price. Because the effects of quotas cannot be counterbalanced by depreciation of the foreign currency or by export funding, quotas may be more troubling to the international trade mechanism than tariffs. Quotas can also be a coercive economic weapon.

However, some argue that tariffs and quotas often lead to corruption, such as with smugglers looking to escape tariffs and thwart quotas and high prices for consumers as there is less competition between domestic and international goods, which tend to be less costly. Primarily trading domestically represents the most beneficial situation for domestic producers, or American corporations, as there is less rivalry and inflation of consumer goods becomes favorable, but is the least beneficial for domestic consumers, the world economy as well as the domestic economy, as consumers buy less with inflated prices. Free international trade on the other hand, represents the best circumstances as it is beneficial toward the world economy, domestic economy and consumers. Free international trade circulates world economies through widespread trade between nations and spurs competition for goods and services between businesses, which contributes to fair prices and better-made products and encourages consumers to spend more (Mankiw, 2007).

Reference

Mankiw, N. G. (2007). Principles of economics (4th...