Trade Barriers and Protectionism: Impact on Global Economy
Barriers to Free Trade and Protectionism
Protectionism is one of the most controversial questions in the productive system, from the remotest origins of international trade, for both politicians, economists, and businessmen.
Generally, the mercantilism of the 16th, 17th, and mid-18th centuries was a great advocate of a favorable trade balance, meaning exports exceeding imports. It was maintained that if one country had a surplus, another country must necessarily have a deficit. However, we can find arguments for both protectionism and free trade.
Limitations to Free Trade
- Despite a country having a comparative or absolute advantage in producing a good, transportation, storage, and distribution costs can eliminate the benefits of its purchase.
- Some companies may experience decreasing returns to scale due to the increased volume of production for export, causing costs to increase faster than income.
- Factors of production are not fully mobile. This is especially true for capital, labor, and some raw material resources.
- Political obstacles impede economic and free trade in goods and services.
Barriers to Free Trade
- Some industries in strategic sectors may be adversely affected by competition from other countries.
- The labor market and domestic industries can be adversely affected by unfair competition from other countries.
- The development of economic sectors separate from the exterior can be slowed by imports, increasing external dependence.
- If imports exceed exports, there is a deficit in the trade balance, increasing debt.
Types of Trade Barriers
- Tariffs: Taxes on goods coming from outside a country to raise their price and make them similar to, or more expensive than, national goods.
- Quotas: The fixing of quotas or limits on the importation of certain goods to restrict their amount.
- Export Subsidies: Aid granted to the export of products to make them more competitive in international markets.
- Non-Tariff Barriers: These can be health-related, where products that do not pass stringent checks cannot be imported. Bureaucratic hurdles or monetary devaluations can also be imposed.
Balance of Payments: Interpretation and Analysis
The Balance of Payments is the statement of income and payments of a national economy for all concepts over a period. The balance is the difference between receipts and payments. If payments exceed revenues, the balance is in deficit.
Main Sub-Balances
- The current account includes the purchase of goods and services and unilateral transfers (movement of funds without counterpart, such as emigrants’ remittances, grants, etc.).
- The capital account balance records investment movements, credits, and capital, both private and public sector, and both long and short term.
- Remittances constitute the set of available liquid assets that a country accumulates, usually in its central bank, and that helps ensure the normal flow of international payments.
Essential Facts of the Spanish Balance of Payments
Further analysis of the Spanish Balance of Payments would be included here.