The Imposition of Trade Barriers by Governments, Essay Example

The imposition of trade barriers by governments is with the aim of restraining the flow of international goods and services. The tariff serve the purpose of increasing the price of commodities relative to home products whilst the imposition of subsidies reduces the costs of international commodities relative to the local goods and services. Increased flow of trade results in the consumers’ satisfaction over the prices of commodities purchased also referred to as consumer surplus.

On the other hand, the producers of commodities benefit from the returns to fixed factors of production representing the producer’s surplus. The government’s intervention through trade barriers causes increases in prices of commodities resulting in reduced consumer surplus as consumers are unwilling to purchase more of the good and the producer surplus increases since more of the products are not purchased. The net effect on home welfare is referred to deadweight loss which is the consumption loss and the production loss.

Export subsidies are received by firms as payment for the units of sales produced so as to encourage increased production in particular industries. Therefore, agricultural subsidies are aimed to stimulate the production of agricultural produce and equally its consumption. On the other hand, for the exports subsidies by governments to high technology industries, the objective underlying these measures are to allow for the spill over by these firms to other firms within the economy.

In addition, the subsidies to high technology firms provided by governments allow the companies the strategic advantage over rival competitor firms. The individuals who gain from agricultural subsidies are current agricultural exporters from the increases in international prices since other industrialized nations eliminate their subsidies. On the other hand, poor countries that do not produce agricultural products tend to lose from the increased costs. For the subsidies of high technology products result in gains by the purchasers of technology commodities due to reduced prices and the countries offering these subsidies lose since they fail to achieve increased revenues.

The purpose and benefit of multilateral trade agreements allow for the growth of international trade and investments through steady decline of the unilateral agreements that created barriers to trade and increased tariffs on imported goods. It is important that multilateral trade agreements be made since it creates unity and definite processes for settling the disputes of trade amongst nations. Therefore, the multilateral agreements amongst nations result into increased social, economic, and cultural integration also referred to as globalization.

The economic effects of the multilateral trade agreements such as those of the WTO affect entirely every member country within the organization. The WTO which has more than 140 member countries is responsible for overseeing certain international agreements including; the General Agreement on Tariffs and Trade (GAAT), agreements on trade associated investments and intellectual property rights, and the General Agreement on Trade in Services (GATS). On the contrary, countries that have turned away from the multilateral agreements enter into regional or bilateral trade agreements for the purpose of economic benefits within those regions. These trade agreements are inclusive of; North American Free Trade Agreement (NAFTA) and the European Union.

It is important to note that the two complimentary objectives of multilateral agreements are inclusive of; environmental protection and trade liberalization. Promotion of sustainable development is achievable in the presence of sound environmental policies that create equitable, open, and non-discriminatory trade mechanisms that offer crucial contribution to the international markets.

However, the bone of contention arises when nations measure the environmental externalities with regards to agriculture and adoption of appropriate subsidies and policies. Therefore, unlike the unilateral decisions regarding environmental issues create a conflict where policies misallocate resources and hence resulting in negative consequences. In addition, multilateral agreements are important I creating a balance between the advantages of equitable, open, and unbiased international trade systems against the genuine environmental concerns by members states.