Government Role and Trading Blocks
While there are powerful economic arguments for international trade, countries do impose restrictions on international trade. At the same time, regional agreements form one method to reduce or eliminate such restrictions among countries signing the agreement.
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Research government role in trade and trade agreements using your textbook, University online library resources, and the Internet. Respond to the following:
- Should governments promote or restrict international trade? Describe at least three ways in which countries can restrict trade. Irrespective of your answer, which position—promoting or restricting international trade—is most likely to find support as a national strategy? Why do governments commonly initiate policies that support both positions?
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- Research one regional trading block of which the United States is a member. Describe when the bloc was constituted, which countries are currently members, and which products are included in agreements. What is the economic justification for this trade bloc? Do you agree with the U.S. involvement in this trading bloc? What does the U.S. gain or lose?
Government Role in Trade and Trade Agreements
Whether the government promotes or restricts international trade is a debatable issue. Economic experts agree that international trade can be beneficial to a country by creating economic developments, a broader category of goods and services, and increased efficiency. But international trade also comes with disadvantages such as negative effects on the environment, and displacement of jobs in certain sectors. The government facilitates international trade through strategies like negotiating trade agreements, eradicating trade barriers and tariffs, and creating a conducive environment for exporters. These practices are important for the nation as they promote consumer welfare and the growth of the economy. On the contrary, other people posit that the government should prohibit international trade to safeguard local industries and employees against competition. According to Ravikumar et al. (2024), the best strategy is creating a balance between encouraging and regulating international trade. Domestic authorities can promote trade while formulating policies that address the negative effects that are associated with international trade.
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Countries can restrict international trade by creating tariffs and quotas. The government can achieve this by imposing taxes on all imports or reducing the amount of volume of some goods that are allowed in the country through what is commonly known as quotas. This will play a major role in protecting the interests of local industries against foreign competition. Another way the government can restrict international trade is through applying regulatory barriers. Formulating laws and regulations that any foreign product must satisfy to find its entry into the country serves as a barrier to international trade. Gereffi et al. (2021) note that by providing subsidies to local businesses the government creates a competitive advantage for them in the international arena.
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The position that is most likely to find a larger support base as a national strategy is the government’s support for international trade. International trade is advantageous for a country because it opens fresh markets and exposes the domestic market to initially unavailable goods. Zahoor et al. (2023) show that nations that export their goods usually create industries that understand the strategies for building a competitive advantage in the global market. When countries enter into trade agreements, it helps them increase their export volume and grow economically even though the accompanying competition is harmful to the small and upcoming local industries.
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In most cases, governments usually embrace strategies that promote and restrict international trade at the same time because they need to create a balance between developing economically, protecting some domestic businesses, or optimizing political pressures. A good example is a scenario where a government may choose to promote international trade in industries where it enjoys a comparative advantage while prohibiting trade in sectors that are sensitive to preserve domestic jobs (Gereffi et al., 2021).
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United States of America is a member of the regional bloc known as the United States-Mexico-Canada Agreement (USMCA) which was formerly referred to as the North America Free Trade Agreement (NAFTA). NAFTA was changed to USMCA in 2020 with its key agreements centering on promoting trade within manufacturing, agriculture, and service-oriented industries. The economic importance for USMCA includes bolstering a competitive and integrated market in North America, triggering economic growth, and creating jobs for the citizens of the three countries (Kim & Osgood, 2020).
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I agree with the US involvement in the USMCA trading bloc because it has led to economic cooperation and increased relationships among the borders of these nations. The US gains from USMCA through effective economic ties, larger market access, and advanced regulatory cooperation with Canada and Mexico.
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