Trade and barriers to trade

Trade and barriers to trade:				but quota holders do get revenue, the purpose of
Rodamia:				quotas is to protect infant industries and at the same
Rodamia is an agricultural economy, it mainly produces				time reduce the balance of trade of a country.
wheat, cotton grains and other farm products, it is a				Quotas in Romania should be used to improve
developing country and therefore its level of GDP				balance of trade, this is to ensure that imports do
and per Capita income is quite low, despite all these				not exceed exports; also they will be used to
disadvantages it has a potential to develop and attain				protect local industries that are not internationally
high levels of development, according to the classical				competitive.
economist economic development can be achieved				Dumping:
through trade and favorable terms and balance of				Dumping is the process of exporting substandard
trade.				quality products to trade partners, this is the process
Theories of international trade:				of exporting products that do not meet international
Adam smith and David Ricardo developed theories to				standards, dumping involves exporting products at
show how countries gain by trading, Adam smith				very prices which increases the demand for this
developed the theory of absolute advantage, this				products and at the same time the products are not
theory states that trade is caused by differences in				of quality standard.
labor productivity, he stated that cost differences				The government should avoid dumping of
between countries will cause trade, this theory states				substandard goods through establishing a standard
that if country A produces two products Y and X,				bureau that will inspect all products imported.
and also country B produces the same products then				Trade agreements include:
if country A has absolute advantage in producing				There exist various trade agreements which aid in
Good X whereby it uses 10 units of labor and				stimulating trade between countries, trade
country B uses 20 units of labor to produce the				agreements are also referred to as regional
same product then the two countries will trade.				integration and all involve offering fair trade to
David Ricardo was also a classical economist who				member countries through removal of trade barriers,
formulated the comparative advantage theory of				here is some of the regional integration the country
trade, in his theory he stated that even if one of the				should join:
countries either country A or country B is more				PTA- referred to as preferential trading agreement,
productive in all the products they trade the two				in this type of integration countries impose low tariffs
countries can till gain through trade, he considered				on goods imported from member countries than the
Portugal and England who produce both wine and				rest of the world.
cloth, Portugal has absolute advantage in the				FTA- referred to as free trade area, this is a zero
production of both wine and cloth, however Portugal				tariff integration whereby member countries impose
was more efficient and more comparative advantage				zero tariffs on goods imported from member
in the production wine, therefore the two countries				countries, and however there exist transshipment
would still gain through trade.				rules that prevent imports being channeled via low
Therefore the economy of Rodamia has comparative				tariff countries.
advantage in the production of cotton and therefore				CU – referred to as common union, it is similar to
it will gain through trading with other countries even if				an FTA but with a common external tariffs by
those countries have absolute advantage in the				member countries.
production of all the products it produces and export.				UTL- unitary trade liberation, this is a non
Barriers to trade:				discriminatory reduction in trade barriers where goods
Trade impediments include tariffs, quotas and				imported are imposed zero tariffs
qualitative restrictions and also bans, all these are				The above integrations will stimulate trade and offer
barriers to trade in that they restrict the value of				fair trade between member countries therefore the
potential export or imports.				country will experience favorable terms of trade
Tariffs:				when it joins such regional integrations.
Tariffs are imposed on imports where import duties				The possibility production frontier of the Rodamia
are imposed on imports, when tariffs are put in place				economy:
they increase the prices of imports, the purpose of				Point A on the diagram above shows an impossible
these tariffs is to protect infant industries in a				achievable production point, point B on the diagram
country, raise government revenue and to block				shows underproduction whereby the country does
undesired imports. When tariffs are imposed the price				not utilize all its resource, the production possibility
of imports rises and therefore the demand for these				curve joins together the points at which different
good goes down.				combinations of capital and labor can be used to
Tariffs in Rodamia will be used to protect the local				produce optimally, therefore a point on the curve is
industries, restrict the quantity of imports to improve				the most optimal point the country can produce.
the balance of trade and also to raise government				Conclusion:
revenue that will be used in the provision of public				Romania should join trade agreements in order to
goods and improvement of the infrastructure.				increase exports and improve terms of trade and
Quotas:				trade balances, it should also consider avoiding
This form of trade barriers are also referred to as				dumping and at the same time use trade barriers to
quantitative restrictions, the government restricts the				imports from countries that are not from its trade
quantity of imports of certain product, in this case				integration.
the government does not necessarily gain revenue

Global Trade

Trade and barriers to trade