Trading within the economy is an essential part in ensuring the growth of the economy and firms’ profit. International trade has been going on for years; however, over the recent years in particular, there has been a vast expansion on import controls, this is due to various reasons, these reasons are to help growing firms with their domestic status.
Certain industries possess a potential comparative advantage but have not yet exploited the potential economies of scale. Thus, short term protection from established foreign competition allows the infant industry to develop its comparative advantage. At this point the protection could be relaxed, leaving the industry to trade freely on the international market. The danger of this form of protection is that the industry, free of the disciplines of foreign competition, will never achieve full efficiency.
Additionally, with the increased import controls, there will be a reduction/protection from dumping which refers to ...view middle of the document...
The main problem with this is that import controls do not address fundamental issues of a lack of international competitiveness - and that trade barriers simply as a device for controlling a trade deficit do not wash with the World Trade Organisation.
However, with the import controls, there also disadvantages. For One, there will be a great loss of welfare, this is because protection will limit consumers’ access to goods and services which are produced domestically, thus restricting choice. Domestic goods may be more expensive or inferior to their improved counterparts. The welfare loss will occur due to economic inefficiency as countries are not specializing in those goods and services where they have the lowest opportunity cost.
Furthermore, firms that are protected from competition have little incentive to reduce production costs. These disadvantages must be considered carefully by governments. This underlines the fact that the consumer is weakened with power as they are restricted. There is the danger that one country imposing import controls will lead to retaliatory action by another leading to a decrease in the volume of world trade. With that in mind, a volume of world trade reduced would lead to a general slow movement of the economy as trade is restricted and highly controlled.
Having said this, increasing import controls may have heavy effects on LEDCs (Less Economically Developed Countries), as international trade should assist them into becoming more integrated in the world economy which should lead to successful domestic firms establishing contacts with the international capital markets. Furthermore, increasing levels of trade should lead to a foreign trade multiplier effect which should reduce both the levels of unemployment and poverty.
All in all, it is fair to say that international trade is a highly beneficial part of the global economy, as multiplying effects can lead an increase to social welfare. However, it can also be fair to say that perhaps in some cases, the imposed import controls may be beneficial, to an extent. If import controls do find that boundary of course, then the global economy can still benefit from international trade.