Smith, Richard, and Hecklers-Olin promote unrestricted free trade. Mercantilism is a bankrupt theory that has no place in the modern world. Discuss. In its purest sense, mercantilism is a bankrupt theory that has no place in the modern world. The principle tenant of mercantilism is that a country should maintain a trade surplus, even if that means that imports are limited by government intervention. This policy is bankrupt for at least two reasons. First, it is inconsistent with the general notion of globalization, which is becoming more and more prevalent in the world.
A policy of mercantilism will anger potential trade partners because it will exclude their goods from free access to the mercantilism country’s markets. Eventually, a country will find it difficult to export if it imposes oppressive quotas and tariffs on its imports. Second, mercantilism is bankrupt because it hurts the consumers in the mercantilism country. By denying its consumers access to either “cheaper” goods from other countries or more “sophisticated” goods from other countries, the mercantilism country’s ordinary consumers suffer.
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The theory of comparative advantage suggests that a country should specialize in reducing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries. Furthermore, the theory suggests that opening a country to free trade stimulates economic growth, which creates dynamic gains from trade. Therefore, it would follow that if low-wage countries can make certain products more efficiently than high wage countries, the low wage countries should produce and export those products.
International business comprises all commercial transactions that take place between two or more regions, countries and nations beyond their political boundaries. Usually, private companies undertake such transactions for profit; overspent undertake them for profit and for political reasons. The government of a country is expected to perform certain roles for their citizens such providing social amenities to prevent private individuals from exploiting them and also to ensure that there are some level of comfort and safety for the people.
As a result of this the government of a country may put in place some measures to limit some form of trade in the form of tariff barriers. According to the business dictionary, a tariff barrier is government imposed restriction on the free international exchange of goods or revises. The government uses certain restriction policies as trade barriers to limit trade in a country. Some of the policies used by the government include; Quotas, Taxes(Tariffs), Import duties imposition, Embargo, etc. Quotas This policy shows the level of a commodity that can be imported into the country.
Quotas are government-imposed limit on the quantity or in exceptional cases the value of the goods or services that may be exported or imported over a specified period of time. Quotas are more effective in restricting trade than tariffs, particularly f domestic demand for a commodity is not sensitive to increases in price. Taxes or Tariffs These are taxes imposed on imported goods and services. Tariffs are used to restrict trade, as they increase the price of imported goods and services, making them more expensive to consumers.
Governments may impose tariffs to raise revenue or to protect domestic industries from foreign competition, since consumers will generally purchase cheaper foreign produced goods. Tariffs can lead to less efficient domestic industries, and can lead to trade wars as exporting countries reciprocate with their win tariffs on imported goods. Import duties imposition This policy is also used to limit trade by imposing taxes on imported goods and services which will lead to an increase in price of these goods and services.
Consumers being rational will prefer purchasing locally produced goods. Embargo Embargo is a prohibition by a government on certain or all trade with a foreign nation. It is meant to prevent entirely, the importation or the consumption of a particular commodity in a country. It becomes illegal in a country when SUCh g services are brought into the country. s or These tariff barriers above are used by the government to restrict or limit trade to a country.
The reasons why these policies or restrictions are made by the government are to: Provide employment, raise revenue, for protection, redistribution of income and also to prevent anti-dumping. Employment Since the government seeks for a better standard of living for their citizens, trade restrictions may also serve as a source of employment. These employment opportunities may be seen where local producers can produce on a large scale and employ more hands and also employing more custom officials to check on the trade extractions.
Raise Revenue Some trade policies such as tariffs or taxes on import and export duties are imposed to raise revenue. When duties are imposed on goods and services, it generates a large of government revenue. For protection Tariff restrictions on international trade also serve to protect the nation. The government also put certain restrictions on trade to prevent consumption of certain products that may be considered as injurious or hazardous to the nation. It also protect our farmers in terms of certain chemicals may affect their farm produce. Redistribution of Income