“Why do most states try to restrict trade?”
31st August 2009
Literally, “trade is the oldest and most important economic nexus among nations” (Gilpin 1987: 171); in fact, “trade along with war has been central to the evolution of international relations” (ibid). Trade has been considered essentially important for centuries for the reason that it provides wealth from the taxation of trade for politicians and the states (Gilpin, 1987). In the years since World War II, world trade has technically become free trade (Economist, 2009). By definition, free trade is a term that is used to describe “the ability of people to undertake economic transactions ...view middle of the document...
Mercantilist writers are supporters of Mercantilism that is, a “theory of the responsibility of the state to protect and promote national wealth by encouraging exports and limiting imports” (Economic Professor 2009: 1). Furthermore, economic nationalists highlight “the costs of trade to particular groups and states and favor economic protectionism and state control over international trade” (Gilpin 1987: 180). As a consequence, many states have implied protectionist measures such as, tariffs, import quotas, export quotas and export subsidies to reduce trade (Balaam and Veseth 2008). A tariff, which is the taxation that governments add on imported goods, is the most common protectionist measure used by most states (ibid). Once again, export and import quotas are another type of physical limitation to the quantity of goods that can be exported and imported into a nation (ibid).
Besides the social and cultural effects that trade has brought to the society there are a number of economic reasons why most states try to restrict trade. These reasons comprise of the protection to infant industries, preventing dumping (Coku 2009) and keeping national security in a steady state.
Once more, to prevent dumping is one explanation why most states employ trade restrictions. By definition, dumping is a practice when a particular good is sold in overseas markets at a lower price than its cost of production (Coku 2009). Dumping is considered as an unjust trade exercise “when used to drive out competitors from an export market with the goal of generating monopoly power” (Balaam and Veseth 2008: 107). Take the U.S. and European Union (EU) steel industries for instance, the European steel industries are high cost and are greatly nationalized in the past (Lane 2002). Even though the EU steel industries are very much consolidated and privatized in the recent years, “many EU companies arguably have benefited or stayed in business through state subsidies or by allegedly dumping products in foreign markets” (Lane 2002: 17). Thus, the U.S. steel industries have instructed about fifty antidumping exercises against the trade of EU steel industries to protect its domestic steel businesses (Lane 2002).
National security is another explanation why governments should limit free trade. It is clarified that the “free trade undermines national autonomy and state control over the economy by exposing the economy to the vicissitudes and instabilities of the world market and exploitation by other, more powerful economies” (Gilpin 1987: 183). A number of economic nationalists argue that specialization “increases the vulnerability of the economy to untoward events and subordinates the domestic economy to the international economy” (ibid), and most importantly, it pressures local businesses “on which national security, established jobs or other values are dependent” (ibid). As a result, it is claimed that the growth “of global economic interdependence...