International Economics, Cause Trade Restriction Essay

704 Words Mar 15th, 2015 3 Pages
When trading in an international market, a company must understand the ways, countries can interfere with trade. These trade barriers, according to Kishore Kulkarni’s book on International Economics, cause trade to “diverge from the comparative advantage pattern” (pg.266). David Ricardo’s comparative advantage “is an economic law that demonstrates the ways in which protectionism is unnecessary in free trade” (pg.145). This section will provide an in-depth look at the trade restriction known as a tariff.
Tariffs are a part of life for anyone attempting to trade internationally. This raises a question; why do countries restrict trade in the first place? There are three legitimate reasons why tariffs might be used. The first has to do with protecting a new industry; this is known as an infant industry. According to Richard T. Froyen’s book on Macroeconomics Theories and Policies, an infant industry is “one that is too underdeveloped to achieve comparative advantage or perhaps even to survive in the global environment” (pg.350). Such an industry may be small and undercapitalized to survive without government intervention. This political intervention would be achieved through tariffs, quotas, or subsidies. The next argument against free trade is known as the national defense argument. In short, this argument would be applicable during a crisis; attempting to protect important domestic industries, ensuring their products is well established.
The final reason why a tariff…

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