As the world markets change and businesses become more profit-driven, the levels or competition and the furthest that the producers are willing to go in order to gain an upper hand in a given economy seems to be boundless. This has led to the need for each country to determine the trade patterns and extend proper regulatory frameworks for trade in the domestic markets in a bid to achieve industrialization goals. This paper seeks to identify how a government may achieve trade protection and the benefits it can derive from such protection.
Trade protection is the attempt by the government to safeguard the local producers from the importers; it is an economic policy adopted by a government that seeks to control the amount of imports entering the country in an effort to shield the local industries from the dynamics of free trade. Protectionism policies are rules and regulations that are aimed at limiting the international trade and in this case the import trade into a country.
This reduction of the goods coming into a country is aimed at ensuring that the domestic companies especially the infant ones are not driven into closure by the more competitive international manufacturers.
Protection measures act as a source of revenue to the country imposing them. When a country imposes tariffs on imports, the persons or companies bringing in goods from outside the national borders are obliged to pay a given amounts of tax which acts as a source of government income and helps offset the government debts. In addition, the charges levied on the licenses given to the importers who are limited by quotas also act as a source of the revenue. Indeed, the licenses may be floated and sold to the highest bidder, making an alternate source of revenue.
When companies are starting up they are usually very fragile for they are entering an already saturated market which has both the local and the foreign manufacturers competing for a market share. In order for such companies to have a chance to grow and become competitive at the international scale, there is a need to protecting them against the harmful competition experienced in the international markets hence trade protectionism.
Trade protection acts to protect the home markets against dumping. This is where the producers sell goods to a foreign country at prices not reflective of the prices of the same products in the countries of origin or selling them at prices that are lower than the costs of manufacturing or producing the goods. These goods with extremely low prices pose a great threat to the domestic producers and need be regulated to protect the local producers.
Trade protection also acts to protect the domestic market against the substandard goods that would otherwise destabilize the local markets but not offer the buyers his money’s worth. This can be construed to include the flooding of the third world markets with the second hand clothes from the western countries.
When a country foregoes the free trade for protectionist policies, it closes up its borders. This may help in the restriction of the importation of injurious products into the country. These commodities may include but are not limited to drugs and/or weapons. With the borders closed up, the flow of harmful products across the borders is curtailed.
Import protection mechanisms are the methods and apparatus that a country uses to ensure that the import process is well controlled and made more rigid so as to reduce the amount of imports. It is the approach that the government uses to implement the protection measures. Regulation of imports can be implemented in different ways depending on what the government wants to achieve from the protective measure or what the problem is. These measures may include the following.
Tariffs are taxes levied on the imported goods; a country intending on using protective measures may start charging taxes on the goods coming from foreign producers or increase the rates of taxes if it was charging some before. This tax will deter the importation of goods because it would increase the prices of the imports in relation to the locally produced goods.
The increased prices of the imports would make them less glamorous and less preferable than the local products hence increasing the local sales. The reduced preference for the imported goods in return translates to reduction of the imports due to lower markets. This in turn would act to revamp the local manufacturing sector due to increased demand for the locally manufactured goods as a substitute for the imported goods.
Through the use of quotas, the commodity imported can be regulated through the restrictions on the maximum amounts of the commodity that can possibly be allowed into the country in a given time frame. The reduction of the amounts to be imported will act to drive up the prices of the products due to the high demand for the products and low supply.
The increased prices will lead to the customers sourcing for the more affordable locally produced goods, therefore, increasing the markets for the local companies. Quotas can be used to reduce the levels of competition by surrendering parts of the markets to the importers and leaving the rest for the local producers.
A government may be starting up sugar production and is limited in terms of the market due to the free reign of the sugarcane importers. The local companies cannot supply the whole population so the government may allow for sugar importation up to a given level from where the local producers become the suppliers.
Government subsidies help the local manufacturers and companies become more competitive and give them more strength and a backbone to face the other more developed and/or more funded international producers. These subsidies help the local producers stay afloat even when they are operating at a loss due to the increased foreign competition. It’s usually in form of cheap loans and/or grants and they help the company keep operating until such a time when in can stand on its own. These subsidies make the local products cheaper hence more appealing.
Administrative barriers apply when countries raise the limits on some of the rules that must be met by the trading organizations so that they can be allowed access to that country’s local markets. These barriers may act as a way to reduce imports because they terms put in place are unachievable or not economically viable. These may include rules on food hygiene and safety, quality control, or even environmental conservation.
A country may lower its currency value so that the imports become more expensive hence less preferable. In order to protect itself from the harmful experiences of international trade, a country needs to impose rules to protect itself together with its local industries from the adverse effects of free trade. This enables the government to regulate the activities in the local markets and be able to correct any adverse effects of international trade.
In doing so it earns revenue through taxes and licensing while on the other hand, it regulates the competition of the foreigners with the local firms and controls prices and quality through the elimination of dumping and sale of substandard commodities.
This is done through the use of subsidies, administrative barriers, tariffs and quotas. In doing so the government is able to either stop or limit on the importation of certain products while at the same time remaining in the international trade arena.