Question

Why do most countries impose restrictions on trade with other countries? If the theory states that free-trade across borders generally leads to lower prices and increased benefits for consumers and producers, why don’t governments just leave trade alone?

Answer 1

Because there are disadvantages of free trade as well.

A.The small scale and cottage industries are adversely affect do because they are not able to compete with the world price and international companies.

B.Sometimes the domestic producers suffer losses because they have to produce lower output at given prices.This increases the unemployment rate in that particular sector.

C.Some countries try to capture the domestic market by dumping,i.e.,the price they offer to the domestic country is lesser than the price they charge in their own country.This is an unfair trade practice.

D.So much international competition discourages aspiring entrepreneurs and new startups due to the fear of high risk of competing with international firms.

Answer 2

While the theory of free trade suggests that it can bring numerous benefits, in reality, most countries impose restrictions on trade with other countries for several reasons:

1. Protecting domestic industries: Governments may impose trade restrictions to protect domestic industries from competition by foreign producers. This is done to safeguard jobs, prevent economic decline in certain sectors, and maintain national security.

2. Infant industry protection: Developing countries sometimes implement trade restrictions to protect their nascent industries from established foreign competitors. By shielding these industries from intense competition, governments aim to allow them to grow and become more competitive in the long run.

3. National security concerns: Certain goods and technologies may have implications for national security. Governments may restrict trade in sensitive items such as military equipment, dual-use technologies, or strategic resources to prevent them from falling into the wrong hands or compromising national defense.

4. Addressing unfair trade practices: Governments may impose trade restrictions to counter unfair trade practices by other countries, such as dumping (selling goods below cost) or subsidizing industries to gain an unfair advantage. In such cases, restrictions are implemented as a means of enforcing trade rules and ensuring a level playing field.

5. Protecting public health and safety: Trade restrictions can be imposed to protect public health and safety, such as banning imports of products that do not meet certain safety standards or have health risks. This ensures that goods entering the country meet specific quality and safety requirements.

6. Political considerations: Trade restrictions can be influenced by political factors, including diplomatic relations, geopolitical considerations, or responding to domestic pressure from interest groups or constituents. Governments may use trade policy as a tool for achieving broader political objectives.

It's important to note that trade restrictions are often a result of a balancing act between protecting domestic interests and reaping the benefits of international trade. Governments assess the potential gains and losses associated with trade liberalization, taking into account various economic, social, and political factors.