Governments Involvement in Trade

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There are many reasons for which governments decide to interfere in the trade of goods and services. Those reasons can be economic, cultural or political. They often choose to involve themselves because the society’s economy is performing worse than expected. There are ways governments can intervene to help their nation such as inflicting different trade barriers, the common ones being tariffs and quotas. First of all, one of the ways a government can help its nation is by imposing tariffs. The basic definition of a tariff is a tax, which is placed on an imported or exported product, by the government. The imported good can be charged per unit, for example two dollars per bag of rice, or by percentage, for instance 15 percent charge on the price of a tractor (Caballero). There are many ways these taxes can be helpful. Firstly, they can protect domestic producers from international competition. A government may use a protective tariff to artificially increase the price of an imported good. For example, if there’s a 50 percent tax on a machine which is imported and was originally sold for 100 dollars, it will now cost 150 dollars. Local companies can then sell the same machine for 149 dollars (Martin Frost). By raising the tariff on an imported good, it makes domestic goods seem more appealing to consumers because of their low prices, by creating a better national economy. Also, a revenue tariff can be imposed on a good which is not produced in the country. It is basically an amount created to make money for the government. For example, if a country does not produce any rice, it can place a revenue tariff on it and have a constant stream of earnings. There is also another type of tariff called ‘export tariff’. Though it isn’t used ... ... middle of paper ... ...ncrease internationally. This is the reason why the Organization of Petroleum Exporting Countries (OPEC) was created: “This group of nations from the Middle East and Latin America attempts to restrict the world’s supply of crude oil in order to earn greater profits” (Wild 165). Essentially, quotas are another positive way governments can come aid to their nation. In conclusion, tariffs and quotas are two different kinds of trade barriers that basically have the same purpose: they are both defensive methods inflicted by the government to help deal with trade between nations. Works Cited http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp http://www.wisegeek.com/what-is-an-export-tariff.htm http://www.fao.org/docrep/003/x7352e/x7352e03.htm http://www.investopedia.com/terms/q/quota.asp http://martinfrost.ws/htmlfiles/tariff1.html

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