Trade Barriers and Globalization
To put it in simple terms, trade barriers are restrictions on international trade. On the other hand, globalization refers to the increase in interdependence of countries in one global marketplace.
Reasons why the Government Creates Trade Barriers
- Protection of infant industries
Government establishes trade barriers on competitors from other countries to give protection and time to the infant industries (newly developing industries) to scale and become competitive.
- Protection from dumping
Dumping is when importers sell their products to the home market lower than locally manufactured products. This may be because the products can be produced at a lower cost abroad compared to the home market, or it can be a move to gain market share by large organizations (01).
However, governments can either place trade tariffs to protect domestic producers or ban certain companies from doing business in the country.
- To gain extra revenue
Trade barriers are a source of revenue for the government through the imposing of tariffs. Imposing tariffs means the imported goods become expensive, and locally made goods would be bought instead, which would, in turn, boost the country’s economy (02).
How Trade barriers Potentially Hurt Workers
Trade barriers can be beneficial to some workers and, at the same time, hurt others. It can reduce the number of jobs and also affect the wages of workers.
In a case where the importation of goods from foreign countries is limited, there would be low sales of the imported goods, resulting in workers being laid off in the foreign industries (03).
Also, trade barriers reduce the level of wages of workers in an economy. When there is free trade, the amount of production of a company increases, thereby increasing its level of wages.
How to Avoid Trade Barriers
- Choose a different market to trade in: to avoid import duties on goods produced, you have to select a different market with no trade barriers.
- Produce goods in target countries: to avoid trade barriers, you can either produce goods in target markets or partner with companies in the target market to produce the goods at its company to avoid imports (04).
- Develop value-added activities that are not subject to tariffs in the target market, and will enhance the value of the more expensive product
Alternatives to Trade Barriers
When you feel there has been unfair treatment in the way a country deals with their trade, there are alternatives to the trade barriers that could work better, and these include:
- Employing currency management strategy: currency management refers to the process by which foreign companies with significant cross-border transactions implement strategies to limit their exposure to foreign trade fluctuations in order to maximize the return on their foreign market operations.
- Do nothing about it: the economy benefits through imposing trade barriers. Therefore, it helps them grow more.
Labor Standards and Working Conditions in Developed Countries and Developing Countries
Most times, workers in many developing countries labor under conditions that are frowned on in developed countries. They are often paid less than the developed countries’ minimum wages. A typical minimum wage paid per hour in developed countries might be daily pay in developing countries.
Also, in developing countries, working conditions may include child labor or overworking workers, which doesn’t affect developed countries. Developing countries accept these harsh and unfavorable working conditions because they do not have many alternatives.
Check the following reference articles to learn more about Trade Barriers and Globalization:
- Agarwal, P. (2020, May 21). Trade barriers. Intelligent Economist. URL
- Corporate Finance Institute. (2019, December 3). Trade barriers. URL
- Greenlaw, S. A., & Shapiro, D. (2018). Arguments in support of restricting imports – principles of economics. Pressbooks. URL
- Roy, E. (2021, March 15). Overcome 9 of the most common market entry barriers with these strategies. Trade Ready. URL
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