Internatoinal trade Essay Example | Topics and Well Written Essays - 2000 words

Internatoinal trade - Essay Example Statistics shows that the world output rose from 16% to 22% between 1980 and 2007 (Zymek 2010: p. 2). During this period, the word’s GDP increased significantly. There are various reasons for the growth in the world’s trade during this period. Many people have argued that the removal of the trade barriers is one of the major factors which have contributed to the growth of international trade. Trade barriers are the impediments to free trade. Impositions of trade barriers discourage international trade. One of the main international trade barriers are tariffs. Over this period, the average tariff rates among the most powerful economies reduced significantly. Zymek (2010) argues that the recent growth in international trade resulted from the fact that many open economies had become less homogenous with time. The classical trade theory proposes that the differences in the relative factor endowments encourage specialization in the international goods market. This realizatio n has significantly led to an increase in the level of interdependence among different economies. Consequently, this has led to an increase in the level of interdependence among these countries. The more the countries become specialized, the higher the level of goods they produce. This contributes to the growth of the international trade. ... quantitative restrictions) as a method of controlling imports Differences between tariffs and quota In various economies, there are many ways through which the government can protect the domestic competing industries. That is, through a quota or a tariff. One of the main areas where these policies differ is on the magnitude of protection of each. Quotas provide more protection to the domestic industries due to the fact that they limit the quantities of particular product which is allowed to enter into the country (Suranovic, not dated: par 3). On the other hand, tariffs protect the domestic industries by just raising the level of prices. Importance of tariffs over quotas (quantitative restrictions) In most cases, tariffs are preferred to quotas. There are several reasons why many governments prefer tariff to quotas. To start with, a tariff generates revenue to the government (Suranovic, not dated: par3). This is more so when the tariff is unprohibitive in nature. Once imposed, tariff will automatically generate revenue for the government. On the other hand, quotas may not generate revenue to the government. However, this will depend on the manner in which the quota is administered. Quotas administered on the first come served basis will rarely generate revenue for the government. On the other hand, a quota administered by selling of tickets will generate some income for the government (Suranovic, not dated: par 4). The administrative costs between these two forms of trade control differ significantly. Some of the processes involved in tariff collection involves the identification of the product which is then followed by collection and processing of the fees. On the other hand, the trade control through quotas