Enhanced Competition for Local Firms
In the quest of promoting domestic economy, a country pursues all ways possible to ensure at its local industries and firms involved are adequately empowered to achieve both domestic and international competitive standards. The competitiveness of a local firm is of dire importance since it provides an avenue of possibilities that could lead to a given country featuring eminently in today’s global market (Saggi & Yildiz, 2009). Especially with the extent of globalization practices, international competiveness of local firms is suitable to provide strong links in the integration ties with other countries. However, to acquire such levels of competitiveness, a local firm should be armed with a number of different tools. For one, there should be a relevant touch on technology. Innovativeness is a key factor to secure consumer bases for given products in a given market. This means that a local firm should have the access of different products in the market so as to use them as a reference while designing what to put in the market.
More so, a good way to feature in international markets is having a good entry strategy. One of the best entry strategies is indulging in a joint venture. However, the joint venture should be with a notably known company in another foreign economy, and one with good records of quality products. The only sure way of ensuring that a local company gets all that information right is by having a direct interaction of competing products and competing firms in the international market. Abolishing tariffs and import taxes provides an easy way for entry of foreign commodities and enhanced competitiveness (Amiti & Konings, 2005). Once in the country, the local firms have access to them. They can study them to learn different technologies, product mix and other important details necessary for them to apply and produce more competitive products to feature both in the domestic and international markets.
Under Development of Local Industries
Against all the efforts by the proponents of trade protectionism mechanisms to illustrate how local industries benefit development-wise in the presence of international trade tariffs and import taxes, the opponents provide significantly notable arguments illustrating that instead of growth, the presence of tariffs and taxes culminates into under development of the local industries in most countries (Salvosa, 2004). Basically, the import products involved in international trade are of various uses. Some of the products are ready for direct consumption by the consumers. Others are intermediate products that need further processing before consumption. Lastly, some are entirely raw materials that require total production before they can be put into any use. The ready to consume products have no such direct effects on the growth and development of local industrial systems. However, the intermediate goods and the raw material goods have a clear link with the development of local industrial sectors. The fact that there are people and companies willing to import such products means either of these things.
First, there are completely no such raw materials necessary for the production of certain products in a given domestic economy. Second, such raw material exist in the given domestic economy, but it is much easier and cheaper to acquire them form the foreign markets so as to increase the profitability of the firm and thus ensuring its going on concern. The above two conditions are very genuine reasons for engaging in productive foreign trade. In light of this, enacting trade protectionism techniques of levying import taxes and incorporating tariffs on all import goods may lead to the failure and under development of local industries (Saggi & Yildiz, 2009). For local companies depending on cheaper foreign raw materials, they will have to operate by using local expensive raw materials and will have relatively low returns to capital investments due to the high production costs involved. They will not have a chance to explore their productivity to the maximum. For other companies whose raw materials must be imported, they will most definitely have to close down or venture in production of different products all together. The same case applies to companies practicing in finishing the production processes of imported unfinished goods. In short, according to the arguments by trade protectionism opponents, the presence of tariffs and taxes on import commodities in most cases leads to under development of local industries, especially in countries with inadequate natural resources.
Why Trade Protectionism is Important
Despite the fact that both the proponents and the opponents of trade protectionism mechanisms of tariffs and taxes provide reasonable demonstrations illustrating the reasons for each taking a deferent perspective, there are certain factors which when considered render one of the party’s arguments as more powerful. Critical analysis of both schools of thought illustrates how the arguments in favor of tariffs and taxes on products manufactured outside the county dominate over the arguments the enactment of tariffs and taxes on such commodities. Some of the reasons include the following.
Span of Benefits
In this case, the span of benefits relates to the entire time through which the positive effects of either enacting tariffs and taxes on import products or abolishing them altogether will be felt in the domestic economy involved. Logically, irrespective of the extent of the benefits at any one given time, it is quite in order to determine the over all time over which the said benefits will transpire. Accordingly, the benefits of having the tariffs and the taxes on products manufactured in foreign countries exist for a long time. For instance, the advantage of having a positive balance of trade over the years is more important than having economic developments in a short period as provided by trade liberalism techniques. More so, tariffs and taxes reduce the competition of local firms by foreign companies thus aiding them to operate for many years. However, the trade liberalism provided by the absence of tariffs and taxes result to local firms gaining some competitive ability in the international level. However this competitiveness is short lived due to the dynamic traits of international trade.
Economic development is a very vital tool of measuring a countries economic status. At all costs each country yearns to reduce its unemployment levels as well as improve its employment standards. In light of this, before implementing any strategic decision in terms of trade and economics, it is advisable to certify that it works best in terms of ensuring optimal domestic level of employment. The enactment of tariffs and taxes on import products guarantees better chances of combating unemployment than their absence does. Specifically, with tariffs and taxes, fewer goods enter in the domestic economy. Consequently, more goods must be produced internally irrespective the cost of production. The increased production calls for more factors of production, which include labor, and thus unemployment is relatively reduced (Carbaugh, 2011). On the other hand, the absence of tariffs and taxes result to the opposite of the above.
Promotion of Foreign Domestic Involvement
The current globalization trends result to various distinct features in the market integration scenario. One of these is the Foreign Domestic Investment (FDI). FDI relates to the business operations where companies in foreign economies establish their operations in a domestic economy either through Greenfield Investments or Joint Ventures. Foreign Domestic Investment is important for a host domestic country since it provides its economy with new necessities (Yan, 2010). Establishing Foreign Domestic Investment operations includes bringing in new expertise, venture capital and labor chances in the host country economies. More so, the presence of FDIs in a domestic economy means that the country’s export capability is heightened since most of the products resulting from the FDI venture are exported to various other countries. Tariffs and taxes favor the presence of FDIs since by making importation hard; some multinationals opt to establish production firms in the countries enacting such protectionism measures. Although this is aimed at evading the tariffs and taxes, it results to notable benefits in the overall implementation (Yan, 2010). On the other hand, the absence of tariffs and import taxes does not act as a way to induce FDI operations since the multinational do not have any barriers in their quest of expanding their consumer bases.
The issue of trade protectionism is a controversy in today’s world. There are different thoughts forms various economic experts pertaining on both enacting and abolishing such protection measures such as tariffs and taxes. The strongest opponents of tariffs and import taxes are mostly free trade activists who provide relatively valid reasons as to why there should not be such protection measures. The proponents of tariffs and taxes also highlight valid arguments for enacting trade protectionism. However, although both the proponents and the opponents prove their points, it is still good to consider enacting the tariffs and import taxes on import products. The reason behind this is that the advantages of abolishing trade tariffs are short-run compared to the long-run positive impacts of enacting them.
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