International Sanctions, Tariffs, Quotas, and Trade Restrictions

How do international sanctions, tariffs, quotas, and trade restrictions affect international trade and costs and production? To answer your questions, we first must look at why the government would impose or restrict international trade. Sanctions are used protect the countries doing trade. Most common sanctions are used to stop terrorism. Trade restrictions on weapons, and other materials used to make weapons are very common among many countries. Additional information about these types of restrictions can be found at the U.S. Department of Treasury, Office of foreign assets control website. A tariff is a tax on imports imposed by the government to raise funds. There are many different types of tariffs. You can use a tariff to protect an industry in your country; you can use a tariff to raise revenue. (Sawyer & Sprinkle, 2006, pg 132) A Quota is a "government policy that limits imports of a product to a certain number of units." (Sawyer & Sprinkle, 2006, pg 157) All of these items can hinder international trade and increases the cost of production.

How do tariffs and sanctions on the import of auto engines into the U.S. affect production and costs at a company?

At this time, due to NAFTA, there are no tariffs or sanctions for importing auto parts from Mexico the United States. If there was, tariffs would increase the cost of the product and the cost would then be passed on to the consumer. We would have to reevaluate the cost of doing business in Mexico.

Do you agree with trade restrictions? Trade restrictions are used to protect local industry. This can be a double edged sword. Although trade restrictions protect local economy, it does not promote free trade nor does it help keep the cost of consumer good down. Trade restrictions can be successful in protecting the local economy. However, when using trade restrictions to deter terrorism, we need to look to better ways to control this type of activity.

References

Sawyer, W.C., & Sprinkle, R.L. (2006 & 2003). International Economics, Second Edition. 2003 by Pearson Education, Inc., Upper Saddle River, New Jersey.

U.S. Department of Treasury, Office of foreign assets control, October 18, 2005, "What you need to know about U.S. Sanctions", [Electronic Version] retrieved on October 21, 2005 from http://www.treas.gov/offices/enforcement/ofac/sanctions/t11ter.pdf