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Recession And Trade Barriers

RECESSION AND TRADE BARRIERS

WHETHER TRADE-BARRIERS SHOULD BE USED AFTER THE GLOBAL FINANCIAL CRISIS

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Recession And Trade Barriers

Slowly, worlds economy is tiptoeing from precipice. Most of the economies of the world are coming with different sort of policies including fiscal budget cuts so to reduce government spending and to lessen fiscal deficit so core budget could be made controllable. What world economies need to do is that apart for looking at macroeconomic policies, some heed should also be given to the trade barriers because trade is something which can bring countries out of this vortex of recession as the basic gist of trade lies in the concept of comparative advantage; produce what you can produce the best. In this way counties can lessen their production costs in which they are highly inefficient and would be producing the only thing in whose opportunity cost of production is low and less factors of production are utilized. This would ultimately will put a cap on inflation as economies which are efficiently run will produce more from less resources maintain a balance in economy and in balance of trade which would ultimately put less pressure on exchange rate (Blaine 2008). Above paragraph was the over view over how trade can be viable for an economy especially now a days when the recession has gripped economy. Trade barriers are still applicable for some third world and some developed world countries that are foolishly living under a phobia that they would be protecting their own nations economy which would result in national prosperity and affluence (Findlay 2009). Although trade barriers through taxes, taxes and duties can create protectionism for the local industry but the empirical studies over the years coupled with historical experience and economical reasoning, it has been proved that trade barriers always result in UN employment and increasing monopoly power of domestic producers. If we see from a broad angle, we see that protectionism destroys local jobs and creates poverty. Montesquieu, one of the great political philosophers said that trade can harness peace in

Recession And Trade Barriers the society because when two nations will differ from each other, they would be requiring things to depend on, this is why one would be interested in selling and other would be interested in buying so mutual dependencies on each other can make them live in peace (Bernstein 2009). Perhaps, peace is what is required in world today. Now a days, political leaders are of the view that a country should not be given aid but trade by acting on the principle of teaching how to catch a fish instead of having fish from lender again and again and being dependent on it. Trade barriers are levied in form of tariffs, non tariff barriers, embargos, quotas, local content requirement, technical barriers and subsidies. Tariff is the amount placed on per unit of goods imported for example if Rs. 5000 is the tariff imposed on importing one unit of computer, then it would make 5000 x 20 for twenty computers. The more the units of goods, the more would be the tariff. In non tariff barriers, bureaucratic steps and red tapism creeps in as they try to delay the trade with any foreign country so their goods can be kept on bay and not allowed to enter into local market (Langewiesche 2003). Thirdly, embargos are import ban on specific products or on whole products of a country. Basically it is done so to achieve a political agenda or to make a countrys economy suffer so it can eventually go bankrupt. We have seen lately that embargoes on Iran recently by UN cautioned all the countries not to have military links with it so sale and purchase of any military hardware by any country can welcome penalty on it. Quotas on the other hand are allowance of trade of certain quantity by a country to another country (exporting country). Quotas are basically given so to protect local industry from being going out of competition as the foreign product would be coming in a limited quantity only. Third world countries like Pakistan, Vietnam, Sri Lanka and Bangladesh look for quota extensions from European Union and United States of America because it brings a lot of foreign exchange into the economy. Local content

Recession And Trade Barriers requirement is also a sort of trade barrier which makes a firm add some local material in a production of a product so local industry can also benefit from the production going on at home territory. Subsidies on the other end makes competition stiff for foreign goods that is why there is a lot of anger by world all over against the subsidies as it hurts competition. China in this regard holds a first position as it gives too much subsidies to its industries which makes its products more competitive in the world market. Lastly we have technical barriers which also act as barriers to trade because countries com up with different quality standards in health, welfare and quality reasons like on Pakistan, European Union put an embargo in 2007 asking it to upgrade its fishery facility so to have hygienic products (Bossche 2008). Although Pakistan kept on providing sea food related products too many countries including Japan but European Union did so just to reshuffle the quota between Pakistan and Bangladesh which was a sort of barrier for Pakistan. Trade Embargos does not help any country, as discussed above. It makes economies more inefficient. Take the example of Indian Sub continent which comprises of Indian, Pakistan, Afghanistan and Bangladesh. Now due to political tensions between India and Pakistan, both the countries have raised unnecessary tariffs and non tariff barriers. If we analyse the picture closely, we see that India is producing low cost and efficient cars (Findlay 2009). The presence of Tata Motors, Fiat and Suzuki at a large scale in India makes it very efficient in car production at cheap rates where as in Pakistan, rates have been quite exorbitant. Pakistani market has banned Indian cars as it would threaten the survival of local manufactured cars which coerces people to buy cars which are expensive. Similarly on Pakistans side, Pakistan is very efficient in producing cement. An average packet of cement costs Rs. 250 in Pakistan whereas it costs Rs. 500 in India, twice as much as it is in Pakistan but Indian government has placed trade barriers

Recession And Trade Barriers and heavy tariffs so that it becomes really expensive to use Pakistani cement (Finger 2004). Now if we see both the countries, we can well analyze that in current recession, both the mentioned states are playing havoc with their economies making goods available to customers at a very exorbitant prices which is not helping a common man in both countries. In Pakistan, cement cartels are flourishing while in India, cement cartels are minting money in large proportions (Bossche 2008). Moreover, Pakistan and Iran can do a better trade with each other but due to the technical barriers now put on by UN on Iran, Pakistani investors and banks must be in trepidation to extend its help to Iranian counter parts as they have signed a contract on supplying natural gas. The natural gas would be serve Pakistans energy interests as country is suffering from a sever energy crisis which have decreased the revenue and slowed down economic growth from 7% to 3% in a year (Hadifi 2010). Now if trade has been spared from the UN regulations, then both sides would have benefited from the deal. Similarly United States have raised the tariffs for steel pipes from China more than 5% just to protect the local industry. It would make steel pipes more expensive which would ultimately result in increasing the cost of construction which would go towards cost push inflation entrenching country more into recession. Protectionists say that they are protecting the local industry but in fact it would make cost to raise more. America right now needs cheap material from outside world so that it can be on a track of recovery from recession instead of lingering and lobbying in it (Kester 2002). Bangladesh on the other hand had very high trade barriers because they want to protect their jute and rice firms from the foreign competition. Already Bangladesh is famous for red

Recession And Trade Barriers tapisim and bureaucratic delays, high trade barriers have made things worse for its economy in the long run when quality becomes a cause of concern (Bossche 2008). At the end, one would be sticking to the same point that yes , countries should go for free trade, open up their borders for the goods and services to follow so our economies could become more efficient. The more efficient our economies would be, the better we would use our scarce resources. Trade also makes countries depended ton each other as trade fine tunes a countries core competency which makes it more efficient in making that product in a much better way. This creates harmony among states which then leads to peace so the benefits of trade are multifold.

References Bernstein, W. J. (2009). A Splendid Exchange: How Trade Shaped the World [Paperback]. Grove Press. Blaine, R. V. (2008). Trade Barriers in Africa and the Middle East [Hardcover]. Nova Science Publishers. Bossche, P. V. (2008). The Law and Policy of the World Trade Organization: Text, Cases and Materials [Hardcover]. Cambridge University Press. Findlay, R. (2009). Power and Plenty: Trade, War, and the World Economy in the Second Millennium (Princeton Economic History of the Western World) [Paperback]. Princeton University Press.

Recession And Trade Barriers Finger, J. M. (2004). Poor People's Knowledge: Promoting Intellectual Property in Developing Countries (World Bank Trade and Development Series) [Paperback]. A World Bank Publication. Hadifi, A. (2010). Budget dashing Pakisani's hopes. Pakistan Economist , 45-47. Kester, A. Y. (2002). Behind the Numbers: U.S. Trade in the World Economy [Hardcover]. National Academies Press. Langewiesche, W. (2003). American Ground: Unbuilding the World Trade Center [Paperback]. North Point Press.