Trade Barriers and Their Implications in China

Introduction

Trade barriers are limitations imposed by a government of a state that usually restricts the sales of a product within this market. This can be carried out in the form of tariffs, which are fees paid upon importing the items. Alternatively, states can set quotas, meaning that only a specific amount of a product can be sold by out-of-state manufacturers. This paper aims to discuss why countries choose to impose trade barriers, their impact on the trade balance, employment, and economic growth, and evaluate the implications of trade barriers in China.

Trade Barriers Specifics

In most cases, countries impose trade barriers to help their economy by providing protectionism that benefits the domestic manufacturer. According to Carbaugh (2019), “trade barriers consist of tariff restrictions and non-tariff trade barriers” (p. 148). For example, the quotas for Japanese care export to the United States aimed to aid the car manufacturers in the latter country. In this case, both the United States and Japan benefited from this policy since Japanese manufacturers were able to charge more for their vehicles. Policies such as domestic content requirements can pressure out-of-state companies to invest in the economy and provide job opportunities (Carbaugh, 2019). It is because, according to this approach, a specific amount of the product’s value must be produced within a country, which would lead to more employment.

The production cost of goods may vary depending on a country because of differences such as employee salary, economic development, availability of resources, and others. Hence, countries that want to aid their manufacturers impose restrictions that do not allow importing particular items to improve the ability of an industry to sell its products since the competition is affected by the regulation. According to Carbaugh (2019), there are multiple ways of establishing barriers, including non-tariff approaches such as licensing, selective or global quotas, and others. While, in general, the policy aims to enhance the economy, such regulations often lead to favoritism or price increase that has a negative impact on the consumers.

Due to the nature of trade barriers, these policies inevitably affect the trade balance of a country since they alter the export and import outputs. The impact of trade barriers on the trade balance is reflected in the price of items, which is altered by a specific regulation (Rodrik, 2018). Hence, some goods may be more attractive in terms of domestic manufacturing and sales, while others may become incompatible due to tariffs. Using the exhale of domestic content, one can conclude that consumers will have to pay for the increase in products’ price that arises as a result of a need to manufacture them in a country. Therefore, trade barriers typically have an adverse impact on the state’s trade balance.

Employment can be affected by trade barriers since tariffs and quotas imposed on non-domestic products can enhance the economic potential of in-state manufacturers. Hence, the industries that were not competitive in the global market can continue producing goods for the state, resulting in stable employment rates. Hence, domestic jobs usually benefit from trade barriers since manufacturers receive an incentive to use in-state resources. However, from a different perspective, workers employed in an export-oriented industry can suffer from these barriers.

Economic growth can be affected by the barriers, either negatively or positively, depending on the nature of the policy and the economic state of a country. Research by Silajdzic and Mehic (2018) suggests that economic growth is enabled by trade openness, which means that countries using various forms of barriers can adversely impact their development. However, some industries, such as agriculture, are supported by governmental policies and subsidization and thus can become incompatible if no barriers are in place. In addition, in the free market conditions, the competition between manufacturers should lead to an improvement in the strategies they use to maximize efficiency. Therefore, a general approach to trade barriers suggests that they have an adverse impact on the growth and development of a state’s economy.

A country that will be used as an example of trade barriers in China. According to Caporale, Sova, and Sova (2015), this state had undergone a severe transformation in regards to its foreign trade policy in 2001 when it joined the World Trade Organization (WTO). The authors argue that the adjustments to policies benefited the Chinese economy and promoted its growth. Caporale et al. (2015) state that “the dismantling of trade barriers led to a restructuring of the industries that previously had strong government protection” (p. 261). Hence, the mitigation of trade barriers allowed China to improve its foreign trade, which had a beneficial impact on the state’s economy.

The arguments supporting the implementation of trade barriers in China may be connected to the need for supporting domestic manufacturers. This is viable in case the state aims to improve the economic output of a specific industry, increase the employment rates, and protect it from foreign competition. For example, since Chinese car manufacturing is rapidly developing, the state can impose quotas and tariffs on out-of-state vehicles making the Chinese products more attractive to buyers. Therefore, these restrictions have a positive impact on domestic manufacturers, who will be able to become more competitive in the Chinese market. However, these policies can lead to the overproduction of goods and dumping.

The arguments advising against the trade barriers are connected to the need for trading with other economically developed states that may reject China’s products due to in-state restrictions. Additionally, from a perspective of a customer, a trade barrier for importing certain goods in China would result in a need to pay a higher price for a product manufactured within the state. In addition, as evidence collected by Caporale et al. (2015) suggests, when China joined WHO and abolished its Trademark Law, Law on Joined Ventures, lowered tariffs to 9%, and removed non-tariff restrictions, the economy of the state experienced significant growth. The majority of this impact was promoted by the ability to trade with other WHO members and through investments that the state’s industries received. Hence, the example of China suggests that minimizing the number of trade barriers can have a beneficial impact on the economy.

Conclusion

In general, trade barriers have an adverse impact on the economy since they limit the availability or increase the price of an item. The evidence suggests that states benefit from free trade, although countries may choose to impose restrictions to support in-state manufacturers. However, such policies usually lead to an increase in price and may result in adverse outcomes. In the case of China, not having trade barriers s a more beneficial approach that allows this country to be a part of the WHO.

References

Caporale, G. M., Sova, A., & Sova, R. (2015). Trade flows and trade specialisation: The case of China. China Economic Review, 34, 261–273. Web.

Carbaugh, R. J. (2019). International economics (17th ed.). Boston, MA: Cengage.

Rodrik, D. (2018). What do trade agreements really do? Journal of Economic Perspectives, 32(2), 73-90. Web.

Silajdzic, S., & Mehic, E. (2018). Trade openness and economic growth: Empirical evidence from transition economies. Trade and Global Market, 9-23. Web.