Free Paper Sample: Effects of Trade Barriers on Economic Performance

Trade is defined as the exchange of goods and services for money in society. Economic growth is highly dependent on both domestic and international trade. Additionally, international trade contributes to a huge percentage of local trade in most economies all over the world due to imports and exports. However, factors such as trade barriers are a significant hindrance to the growth of international trade. Some of the variables that contribute to trade barriers include government policies and economic factors such as tariffs, inflation, exchange rates, and population. In any country, a trade barrier is initiated by the government using a policy meant to restrict international trade.

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The Current State of Knowledge

The discussed is the effect of trade barriers on international trade performance over the years. Based on the economic behavior of industries and countries, as well as their analysis, the increase in barriers to trade negatively affects the performance of trade among industries and nations (Folsom et al. 75). To understand the problem, two hypotheses have been tested. Each one of them explains the effect of the variables as a barrier to international trade performance over the years. Using a multivariate regression model, the dependent variables are seen imports and exports whereas the government policies and economic factors are the independent variables.

The dependent and independent variables present the significant factors that contribute to the economic performance of any country. In this case, the discussion will further look at each variable and how it adds to the economic performance and international trade performance.

Government Policies

In any country, there are policies set to regulate trade. Such policies include tariffs and licenses. The government can impose these factors with a major purpose of reducing international trade with a particular trade bloc country. However, such decisions end up contributing to low international trade and poor economic performance (Folsom et al. 80). For example, the United States imposed trade embargoes on Chinese imports, and as a result, China also imposed tariffs on goods imported from the US. In the long run, China is likely to focus on identifying new markets for their products and lowering their trade volumes to the U.S.

Tariffs are a good thing are they protect local industries. However, the question is whether the same tariffs will create barriers to entry of new businesses or not. For example, some small businesses depend on international trade to survive. With the tariffs, they are likely to face challenges in growth and thus risk collapsing in the long run. Tariffs are therefore a big hindrance to international trade performance in the long run. However, the same tariffs might affect the economic performance of some countries while leaving another stable as it promotes their economic growth. The government policies are thus considered are independent variables since they affect the international trade but cannot be compromised in any way.

Economic Factors

There are many economic factors that exist in society. Each economic factor acts as a barrier to trade for any business. For example, inflation. The existence of inflation in a country is likely to affect trade since imports will become substantially expensive. The higher the inflation, the higher the interest rates and further the weaker the currency. Inflation is thus a negative factor to be considered when looking at international trade in the world.

The population is another economic factor that can play as a hindrance to trade. Countries that are lowly populated have a smaller market for goods. As a result, most companies prefer to make an entry in countries with large populations. For example, creating an entry into India can be considered as compared to making an entrance to Burundi because of the large market in India. The market is readily available for goods and services that are likely to be offered. The economic factors can thus be considered as independent variables since they are not affected in any way (Brown & Robert 280). The population is likely to increase naturally same to the inflation rates which are likely to reduce depending on the government monetary policies.

Imports and Exports

Imports and exports are considered to be dependent variables since they largely depend on government policies and economic factors. The imports and exports are a huge contributor to international trade. However, the effect caused by the independent variables are likely to determine the existence of these factors. For example, with tariffs, both imports and exports are likely to be affected. In most developing countries, imports and exports contribute majorly to their economic growth (Barbone 150). An increase in these factors is likely to strengthen their currency and also increase investment in the economy. Economic growth in these countries is thus directly affected by these factors. The existence of trade barriers is not only likely to affect international trade but also the economic development of such countries in the world.

Importance of International Trade

For centuries, international trade has existed using crude methods of trade such as batter trade. Factors such as trade barriers can be traced to the great depression (Madsen 850). With such periods, trade has always been used as a way to boost regional development as well as regional relations. Countries find it easier to maintain peace because of the benefits that trade brings about. Apart from relations, international trade contributes to the following factors;

First, it helps in the full utilization of resources, especially in the developing countries.

In most cases, developing countries do not have the capability of exploiting their natural resources due to the technology involved and the funding. As a consequence, countries with better resources and technology choose to help such nations exploit their resources without much constraint. In the long run, such countries can export their natural resources to developed countries and use the finances to build their infrastructure and educational institutions (Madsen 850). International trade has thus helped in developing the less developed countries by providing them with access to global markets for their raw materials such as oil, gold, coal among other valuable minerals.

International trade also improves the quality of life of many people in the world. Through international trade, people can get goods from their trading partners who contribute to the positive growth of their economy (Lee & Swagel 375). For example, through international trade, people can access goods from other markets which could be beneficial in one way or another. Having better trade relations thus has a positive impact on an entire society.

International trade also enables a country to dispose of their existing surplus production. In countries with small populations, their end up producing more than they require. As a consequence, there is a risk of existence of deflationary pressure in the economy which would affect the industries (Lee & Swagel 378). However, the existence of international markets provides markets which would not have been accessed for this surplus production.

Lastly, international trade builds the spirit of a diplomatic corporation and relations. Counties are likely to have better political ties due to thriving international trade. It means that in the long run, the existence of international trade is expected to reduce cases of war between countries or states. It is thus necessary to look at the factors that prevent the presence of international trade and reduce these factors to create better markets for everyone and a peaceful world.

International trade has contributed to a lot of goods in society. It is thus an important research topic to consider. It is also necessary to look at how barriers to international trade can be reduced to create an easy trading environment. The best way to remove such obstacles is to create a climate where regions trade with another region (Learner 65). For example, the European Union negotiating trade deals with the United States for the entire Union. The same case should happen to many other regions in the world. With such, it will be easier to trade, and thus economies will develop, and a large number of people will leave the poverty line to middle income.

In conclusion, trade barriers are a big hindrance to world economic development. The world requires countries to trade with each other to promote the development of the least developed and developing economies in the world. It is crucial or countries to coordinate with one another in promoting regional trade and international trade.

Work Cited

Barbone, Luca. "Import barriers: an analysis of time-series cross-section data." OECD Economic Studies 11 (1988): 155-68.

Brown, Drusilla K., and Robert M. Stern. "Measurement and modeling of the economic effects of trade and investment barriers in services." Review of International Economics 9.2 (2001): 262-286.

Folsom, Ralph H., et al. International business transactions: a problem-oriented coursebook. ThomsonReuters, 2012.

Learner, Edward E. "Cross-section estimation of the effects of trade barriers." Empirical methods for international trade (1988): 51-82.

Lee, Jong-Wha, and Phillip Swagel. "Trade barriers and trade flows across countries and industries." Review of Economics and Statistics 79.3 (1997): 372-382.

Madsen, Jakob B. "Trade barriers and the collapse of world trade during the Great Depression." Southern Economic Journal (2001): 848-868.