Source: Image of engine, tractor, curved arrow, border, factory, crowd of people, books, images by Video Scribe, License held by Jeff Carroll; Image of world map, Public Domain, http://bit.ly/SW7eVU; Image of pipe and valve, Public Domain, http://bit.ly/1lCh3oU.
Hi, I'm Jeff. And in this lesson, we'll discuss some of the barriers that countries use to slow or stop trade, and why countries choose to enact trade restrictions. So let's get started.
As international trade is increased, more nations are getting involved. This has also led some countries to take more aggressive tactics to improve their business and raise more revenue. One way they might do this is through tariffs.
A tariff is any imports and exports tax that is placed on a group of products. These might be revenue tariffs, which are intended to increase the revenue of a government, or protective tariffs, which are placed on imports to protect domestic companies from foreign competitors.
For example, most auto parts that are imported into the United States must pay a 25% tariff. Another method that countries use to increase revenue is dumping. This is when a country exports a product at a price below the price charged in its home market, or even below the cost of its production.
In 2009, the US Department of Commerce reported that China's steelmakers had sold steel tubes to the oil and gas industry at below fair market value. This resulted in an unfair trade case being brought against Chinese steelmakers.
But there are additional non-tariff barriers too, such as an import quota, which is limiting the amount of a good being traded to a specific amount or value, an embargo, which is a trade restriction that stops trade with a specific country, and foreign exchange control, which is when a country imposes a limit or a ban on the purchase and sale of foreign currencies by its residents or local currencies by nonresidents.
All of these are trade restrictions. And they are ways countries are artificially limiting the business conducted between nations. But why do countries impose these trade restrictions?
There can be a number of reasons. A country might want to equalize its balance of payments between imports and exports. It might be protecting young or weaker industries.
It could be considered a matter of national security. Or a step taken to protect the health of their citizens. Sometimes it's meant as retaliation and sometimes it's to protect jobs.
But a more cooperative method might be to reach a trade agreement with the other country. A trade agreement is a trade treaty between nations which sets rates of tax and any limit on restrictions.
One such agreement is the agreement on agriculture brokered by the World Trade Organization. This treaty provides international agreement on domestic subsidies, access to markets, and some subsidies of exports.
Another is the G3 Free Trade Agreement. This is an agreement between Colombia, Mexico, and Venezuela, which coordinates free trade between the three nations. This agreement covers issues such as investment, regulations against unfair competition, and intellectual property rights.
Agreements such as these are changing international trade by opening borders to businesses that used to be closed, and providing alliances between countries so they can compete in larger markets. And any company entering these markets would have to evaluate the impact of these agreements on its business.
Across the world, there are a number of countries and regions that have banded together in trade agreements-- the North American Free Trade Agreement, often known as NAFTA, between Canada, the United States, and Mexico, the European Union, the EU, which includes 28 states in Europe, the Association of Southeast Asian Nations with Indonesia, Malaysia, the Philippines, Singapore, and Thailand, and the World Trade Organization, which we mentioned earlier.
The WTO, as it is called, includes nearly all the countries in the world. There are certainly more than these four, but these should serve as an introduction to trade agreements and the organizations founded by them.
Finally, we'll discuss sourcing. Sourcing is determining the production location of goods based on external and internal variables of the business. Companies often devote entire departments or pay consultants hefty fees to analyze exactly where it is best to manufacture different products.
This can also change year to year based on new trade agreements or on shifting economic conditions. For example, if a tariff is eliminated, then it might suddenly be profitable to manufacture outside the importing country.
And as we well know, many countries are more concerned about national security now. And this can change whether it is better for a business to manufacture within or outside a country's borders. And of course, the trade agreements themselves provide a myriad of details that must be evaluated in order to optimize the manufacturing process.
And that's all for this lesson. Excellent. We learned about international trade and how it's impacted by trade restrictions. We discussed why countries might impose those trade restrictions. And we talked about trade agreements and reviewed a few examples.
Finally, we learned how sourcing is impacted by all of these factors. Thanks for your time, and have a great day.
