International sanctions Essay

Published: 2020-04-22 15:24:05
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Category: International

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International sanctions, tariffs, quotas and all other non-tariff trade restrictions are essentially barriers imposed upon international trading relations with the basic motive of raising the welfare of the imposing nation at the cost of others. However sanctions differ from other tariff and non tariff barriers in nature in that these are generally motivated more from political incentives rather than economic ones.

Although trade sanctions generally take the form of tariff and non tariff barriers like licensing schemes and other administrative hurdles they are adopted more as punitive measures arising from political motives rather than from social welfare motives. The basic principle behind a trade barrier is that it raises the cost of producing or participating in a certain industry which centers in the international transactions in question. The barrier imposing nation benefits at the cost of the economy or economies that seek to participate in the domestic market of the imposing nation.

In case of tariffs, the government that imposes the tariff benefits directly from the tariff revenue generated and the firms in the industry as a whole benefit due to the reduced competition resulting from the tariff. Domestic consumers find the products from the import competing industries to be relatively cheaper and hence more preferable in the post tariff scenario. In case of quotas, although the revenue is not present the other effects are there. However it is imperative to note the fact that here the barrier imposing nation benefits at the cost of the others.

Imposing tariffs or binding sanctions on auto engines shall lead to increased cost of acquiring them as inputs. Therefore the overall cost of production will increase implying a necessary hike in prices to maintain profitability. However that will then defeat the entire cost management strategy that has been adopted as with raised prices it will no longer be possible to gain large shares of the global market and trying to increase profits substantially in the face of raised costs then shall lead to such a hike in prices that will reduce the global competitiveness of Acme as a concern overall.

Another mentionable point is that the fact that Acme imports its engines from elsewhere implies that they do not find using homemade engines as inputs to be efficient. So, if the restrictions are binding so that they are forced to operate using homemade engines, they will be operating inefficiently. This is another cost implicit in a trade restriction. I do not agree with any form of trade restriction. Trade restrictions have both their own benefits as well as costs. For the economy that imposes there are certain benefits to be reaped.

However when one thinks from the perspective of a concern like Acme, a restriction on its imports will definitely damaging. Although the economy may still benefit as a whole due to the revenue generation in case of tariffs or indirectly from the reduced competition faced by US Auto engine producers it will hurt a concern like Acme who use imported inputs. But a restriction can be beneficial for a concern like Acme by simply protecting its products by restrictions rather than protecting the import competing industries like the domestic auto engine industry in this case.

If there was an import restriction on cars then Acme itself would have an advantage in the domestic market of USA. However if that led to another country to impose a restriction on US exports of cars, then that would hurt Acme in the global market. So although a unilateral restriction may prove to be beneficial, once it becomes multilateral trade restrictions hurt companies like Acme in the overall global market. Thus, I find it best to do away with all types of trade restrictions.

Source: Salvatore, D. , (2007) International Economics, John Wiley & Sons

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