How Governments Control International Trade

As the economy goes global and many domestic companies both outsource their needs as well as import some products for their end-use, how nations control, assess and in many cases limit imports and exports is a contentious issue for many governments. For some countries, tariffs and quotas represent income; for others it is a means of keeping certain goods from endangering domestic competitors. Perhaps, the overall term for protecting domestic businesses can be called "protectionism." For many international firms, such tariffs and quotas restrict their business opportunities and therefore their profit potential. What needs to occur in the near future is some sort of international rather than strictly national series of tariff and quota percentages or amounts that eliminate restricting doing business across national borders.

One element necessary is to eliminate government subsidies which might make one product cheaper to import than domestic manufacturers could match. China is a leading culprit in this area. Retaliation has begun. One example, "On December 30th America's International Trade Commission approved new tariffs on imports of Chinese steel pipes, which it ruled were being unfairly subsidized"[1] Similar proction regulations have been issued by various U.S. government agencies over the past years, including such resources as timber, coal, military weaponry, farm products such as corn and wheat, rice and sugar beets.

One problem from such protectionist tariffs, however, is the fact that the ultimate consumer may have to pay higher prices. Here is one example all American consumers are caught up in: There is one program which has been in force for several decades. It is designed to protect U.S. sugar cane and sugar beet farmers as well as U.S. companies that process the crops into refined sugar. This program has kept domestic prices artificially high by restricting imports under tariff-rate quotas. "An estimate by the OECD [Organization for Economic Cooperation and Development] found that the cost of U.S. sugar policies to U.S. sugar consumers due to increased sugar prices was $1.5 billion in 2004."[2]

Nevertheless, when either government subsidies or cheap labor, such as most Asian nations and third world countries use, compete unfairly with other nations, creating trade barriers may be acceptable. Here is one such point of view: "Paul Krugman, the winner of the 2008 Nobel economics prize, wrote recently in the New York Times that... China 'drains much-needed demand away from a depressed world economy'. He argued that countries that are victims of Chinese mercantilism may be right to take protectionist action". [3]

It is clear that producers and manufacturers, whether domestic or international, simply cannot produce and ship their products across borders without approval of government agencies. That means, there has to be agreement about price or amounts, even about quality. The French, for example, cannot simnply export their dairy products such as cheese to the U.S. without conforming to USDA standards. Equally, American cattlemen are restricted in what and how much they can ship overseas: "the US has reached an agreement with the EU that has lifted its quota to 20,000 tons for the first three years of the agreement and 45,000 tons in the fourth year"[4]

A major problem about tariffs and quotas is that while it may help certain producers and manufacturers maintain higher prices and thereby potential profits, it may cost consumers more than they realize. Again, here is a very commonplace example of how tariffs and quotas can hurt the end-user: A peanut butter and jelly sandwich, an American favorite, costs all Americans about the same. But according to consumer groups, "this luncheon staple costs too much. That's because peanut butter and jelly are squeezed by a federal agricultural policy that sweetens the sandwich for producers at the expense of consumers. Peanuts are subsidized and sold in the United States at nearly twice the international price; the sugar in the jelly cost two to four times the world market price."[5] The article goes on to add that even the glass of milk to wash it down costs more than it should because of government interference in the marketplace

re the terms "tariff" and "quota" interchangeable? No. There is quite a difference: "There are two basic ways to provide protection to domestic import-competing industries; a tariff or a quota. The choice between one or the other is likely to depend on several different concerns. One concern is the revenue effects. A tariff has an immediate advantage for governments in that it will automatically generate tariff revenue...Quotas may or may not generate revenue depending on how the quota is administered"[6]

There is a vast difference between quotas, which are basically firm and tariffs which are more easily changed as conditions require. It goes without saying that both are weapons used in defense of the economic conditions of the nation imposing them. Again, China is a prime example: It must export enormous amounts of goods because its vast population requires financial support that its domestic production cannot sustain. The fact that China is now such a huge creditor nation is because it has been able to ship goods at prices that mostly undercut domestic production elsewhere thus creating a huge export surpluse for China; which thus has been able to invest those funds in treasury obligations for many nations, especially the U.S.

It is clear that many nations throughout history have used quotas and tariffs as economic weapons- whether as protection or as an effort to force others to accept their products in return for other concessions. What is less clear is whether these impositions of quotas and/or tariffs really benefit the end user. As has been demonstrated above, it is often more expensive to cater to the needs of domestic producers when such protectionism ends up costing the end consumer more- whether for sugar, peanut butter, French wine and cheese, or beef from Japan and electronics from China. However, there are occasions when tariffs and quotas may deter shoddy products or uninspected foodstuffs from entering a country because certain restrictive tariffs may prevent them from being sold.

Obviously, as the initial thesis provides, some sort of uniform international system of tariffs and quotas ought to be established not merely to protect manufacturers but end consumers. The use of tariffs and quotas as economic threats ought not to continue to be permissible. It benefits far too few and gives unfair advantage to far too many.

References:

"BUSH ADVISERS VIEW SUGAR PROGRAM AS HURTING U.S. CONSUMERS"

Washington, D.C.:US Fed News Service, Including US State News

Feb 13, 2006 para. 1

"Fed: Govt seeks talks with EU on beef export quotas"

AAP General News Wire. May 21, 2009. Para. 3

"Finance And Economics: Fear of the dragon; China's

export prospects" London UK: The EconomistJan 9, 2010.

Vol. 394, Iss. 8664

Nichols, H. S. (2001): "Taking the fix out of farm subsidies"

Washington: Insight on the News Aug 13, 2001. Vol. 17, Iss. 30; pg. 20

Suranovic, S. M. (2006): "International Trade Policy

and Theory" accessed March 4, 2010 on

internationalecon.com/Trade/Tch110/T110-4.php

[1] "Finance And Economics: Fear of the dragon; China's export prospects"

London UK: The EconomistJan 9, 2010. Vol. 394, Iss. 8664; pg. 73

[2] "BUSH ADVISERS VIEW SUGAR PROGRAM AS HURTING U.S. CONSUMERS"

Washington, D.C.:US Fed News Service, Including US State NewsFeb 13, 2006 para. 1

[3] Ibid, p. 74

[4] "Fed: Govt seeks talks with EU on beef export quota"s AAP General News Wire. : May 21, 2009.

Para. 3

[5] Nichols, H. S. (2001): "Taking the fix out of farm subsidies" Washin gton: Insight on the News

Aug 13, 2001. Vol. 17, Iss. 30; pg. 20

[6] Suranovic, S. M. : (2006) : "International Trade Policy and Theory" accessed March 4, 2010 on

internationalecon.com/Trade/Tch110/T110-4.php