Every nation has tariffs

LEARNING Objective

The purpose of this topic is to establish why nations trade and why they tend to restrict trade in spite of the profit they derive from trade. The reason for trade is based on the comparable advantage that leads each country to specialize. An extensive list of reasons for protectionism is drawn up. Efforts to increase trade conclude the section.


The value of international trade can be measured by the output of exported goods, which has increased in absolute terms and in relation to a domestic output, and by the degree of interdependence of world economies. In addition, international trade is a substitute for aid mobility. Finally, it also affects domestic prices, the employment rate and all domestic government policy activities.

The United States has historically been more isolated than many other countries because of the distance and the great size and prosperity of its domestic market. However, this is changing: American firms are now increasingly interested in foreign markets. In the numerous product lines most of the products are imported (for example, electronics).


The reason why nations trade is tied to the concept of comparative advantage. A nation has a comparable advantage in being able to produce a good one relatively more efficiently than another country. Nations specialize in the goods in which they have a comparable advantage and trade them with other nations. A country's resource base is a major source of its comparative advantage.

The United States has been blessed with abundant fertile land in the etat Midwestern, and its farmers have been astute to cultivate it efficiently. As a result, the United States has a comparable advantage in corn and wheat, which it does indeed export.


Every nation specializes in production where it has a comparable advantage. Specialization allows every nation to use its abundant resource more intensively and to a certain extent relieve the shortage of its scarce resource. The price of the abundant resource goes up and the price of the scarce resource goes down. Because of the laws of diminishing profit and increasing costs, specialization is never complete.

In Scotland the land was not suitable for much else than raising sheep. So Scotland specialized in making fine woolen cloth.


The main effect of trading is specialization. In addition, prices of resources and commodities are changing. Trade takes place only when the terms of trade, or the relative price of the goods being traded, are between the terms of trade in the two countries. As a result, the prices of commodities tend to equalize in the two countries.

In a tropical country, bananas and tropical fruit can be very cheap, while in northern countries these article rarities and without trade would be very expensive. As a result of the shipments of bananas to the north, the difference in the price of bananas is reduced. There is also an increase in salary and welfare for those who pick the bananas.


If two nations trade, both nations profit from trade. Each nation IS able to get more of the commodity from the other country than it could produce itself. Every country is thus able to consume beyond its production possibilities curve. In addition, income received from abundant resource owners will be improved.

Growing bananas in the United States would be very expensive. Americans benefit from being able to import bananas from tropical countries. The tropical countries can import manufactured products from the United States in exchange for the bananas. All land benefits.


Protectionism consists in the various forms of restrictions on trade between states; these restrictions include
- tariffs (or duties set on imported goods),

- quotas (or spending restrictions on imported goods),

- non-tariff bans (such as import licenses and regulations),

- Voluntary export restrictions (quotas on export through trading

Very rare are the countries that have no tariff at all tariffs are usually highest on consumer goods. You are moderate on semi-finished goods. New technology raw materials and products have little or no tariffs.


The effect of protectionism is supposed to increase the domestic prices of previously imported goods. Revenu from the abundant resource decrease. Profits from trading are let go. Consumers suffer a loss of consumer surplus. Production efficiency is reduced.

The United States maintains a tariff on sugar. In the 1980s the worldwide wholesale price of sugar was around 8 cents a pound. As a result of the tariff, the wholesale price of sugar in the United States is 21 cents a pound. This produces windshield income for a handful of huge American producers. The consumer pays a higher price and endures a hardship (small but real nevertheless).


Include reasons for protectionism
- self-sufficiency,

- baby industry,

- external emptying,

- diversification,

- economic stimulus.

After independence, the United States government defended its tariffs on British silverware by pointing out that its manufacture was just emerging and could not compete with well-established and experienced producers in England.

BUSINESS Liberalization

Free trade efforts are global and regional. The WTO (World Trade Organization, which used to be called GATT or General Agreement on Tariffs and Trade) is a multi-faceted negotiation that has reduced the process involving over 100 countries. The WTO tariffs by more than half since 1947. Economic association, like the European Union (also known as European Economic Community or commun market) that groups 12 European nations, or NAFTA (or North American Free Trade Agreement) that includes the United States, Canada and Mexico, lifts prices and increases trade between nations.

In 1988, the United States and Canada signed a treaty allowing free trade between the two countries, with Mexico later joining to FormcNafta. All three nations can expect to benefit significantly from the deal.

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