International trade and trade restrictions
International trade is based on the process of importing and exporting goods. Every good exported by one country must be imported by another. International trade increases total output. On a global economy imports must equal exports. The trade balance is the difference between exports and imports. When goods are imported more than exported it is trade balance deficit.
On microeconomic level there are gainers and lasers from international trade. Despite the many advantages of trade between nations, trade barriers are often imposed on certain goods. Sometimes imports mean fewer jobs and less income for some domestic industries. Exports represent increased jobs and incomes for other industries. That is why government must use trade restrictions (embargo, quotas, tariffs, trade adjustment assistance):
- Embargo are out right prohibitions against import or export of particular goods. As embargo is a complete ban upon trade with a particular country, it is usually imposed for political reasons.
- Quotas limit the quantity of imported and exported goods. They are often used to restrict imports where tariffs seem to be not very effective because consumers are prepared to pay high prices for foreign commodities.
- Tariffs are taxes on imports. Tariff may be imposed in order to make them more expensive compared to the domestic product, to discourage foreign producer from shipping certain goods into the country. The main purpose of tariffs is to keep out lower-priced foreign goods. For this reason tariffs usually are very high and this makes domestic manufacturer compete easier with imported product.
- Trade adjustment assistance is compensation losses imposed by international trade.
Other restrictions upon free trade between countries are subsidies, exchange control, special rules and regulations.
The most known international trade organization is the World Trade Organization. It was created in 1995 replacing GATT. The World Trade Organization (WTO) is an international organization designed by its founders to supervise and liberalize international trade: efficient policy of country and productive specialization increases world output.