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The economy of a country can be improved through participation in global trade. Thus, it entails the exchange of goods and services at least between two nations (Meyer 2017). The voluntary exchange of goods and services among the involved countries is usually based on mutual benefit. Thus, International trade has allowed governments to establish economic models that will make then to compete with other countries. Countries that are not able to produce goods at a lower price usually take advantage of the international trade. The global trade has played a crucial role in the growth of the economy of Unites States (US). By participation in global trade, the economy of the US has received the required goods at lower cost, which brings about better profits from the venture and more monetarily evaluated products for its residents.
The global trade faces various transactions where one country purchases products from another country whereas other countries have to send their products to other countries. Therefore, the principal transactions are the export transaction and the import transaction. These transactions involve government regulatory agencies in importing and exporting countries like insurance companies, inspections agencies, shipping companies for inland transportation, banking institutions, customs, central excise, clearing and forwarding agents, etc. Introduction of unfriendly regulations on imports while hurting the importations of products from other countries. It means that the economy has to rely on its products to meet its demand. The US usually import food such as vegetable and fruits. Thus, restriction on imports offers the consumer fewer alternatives, thus, increasing the prices of the goods, leading to a reduction in purchasing power of the consumer. This will also lead to a reduction in the country’s net imports. However, an increase in importation by US relatives to products being exported will distort the country’s balance of trade, leading to the devaluation of its currency. A particular country will export products that are best in producing them; as a result, there is more output. Net export will be affected when a country’s imports exceed export, implying a trade deficit. However, when the exports exceed imports, they will have positive net exports, thus illustrating a trade surplus.
According to Mayer (2017), the term tariff is known as to taxation of imports. It is frequently recognized as a trade barrier or duty. The motivation behind the use of tariffs is to safeguard the domestic industries. Countries that impose tariffs tend to render imports more expensive to improve the economics of domestically producing those goods and services. It is a tool through which the government collects revenue. Also, tariffs are imposed by a particular country to attempt to get their trading partners to reduce their tariff rates. It has been shown that the use of tariffs harmed international traders. Industries that import products subject to tariffs tend to pass on the cost of tariffs to consumers by rising prices. Thus, the use of tariffs is a distortion to the market, which will damage the domestic buyer over time. The imposing of the tariff has become a significant hindrance towards to growth of global trade leading to the establishment of free trade among countries. The use of tariffs reduces competition by branding domestic companies less efficiently and innovatively. They can also create tension by preferring particular industries or countries, leading to trade war. The bills for the tariff are usually being paid by the consumers within the country imposing the tariff. It is important to note that imposing international trade tariffs should consider the structure of the industries of the trading countries. There are various strategies through which companies affected by tariffs adopt, such as moving their production to another country, increasing the price of the goods, and absorbing the extra cost.
Meyer, F. V. (2017). International trade policy. Routledge. https://www.taylorfrancis.com/books/mono/10.4324/9781315099095/international-trade-policy-meyer
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