International trade and costs of production
International trade or foreign trade is the “exchange of goods and services between nations” (Foreign trade, 2004). International trade brings advantages to countries since it allow nations to produce goods it can produce for export to other countries. However, nations created government restrictions in order to protect national interest. International sanctions, tariffs, quotas, and trade restrictions are all government restrictions developed by nations to maintain a “favorable balance of trade” (Foreign trade, 2004).
However, these governmental restrictions affect international trade and costs of production since these are all barriers of free trade, limits production, employment, and elevate prices of goods and services. Tariffs are taxes paid by the buyer of the imported goods. Tariffs imposed on the import of auto engines into the United States affect production and cost of Acme Motor Industry since it decreases the demand for imported auto engines because of the higher cost of importing as compared to the cost of those locally produced.
Sanctions on the import of auto engines affect Acme Motor Industry’s global competitiveness because it limits their choice of good quality spare parts for their production. I do not agree with trade restrictions. Although nation’s objective on imposing trade restriction is to have a favorable balance in trade or to protect a certain industry, trade restrictions is a barrier for an industry to be globally competitive.
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Trade restrictions such as tariff and sanctions are said to be effective if they benefit not only the government but also the country as a whole. Tariffs bring additional income to the government in the form of taxes. Trade restrictions must also bring advantages to both the producers and the consumers to have a balanced trade. Bibliography Foreign trade (2004). Encarta Reference Library. Microsoft Corporation.