If another country yours trades with, makes a deal that reduces tariffs and trade restrictions with some other county, your still restricted goods/services are more expensive vis-à-vis the newly freed items from that some-other country.
Get it? Does it MOOOOOve you?
Is this an example of competition making things better for all?
http://www.theguardian.com/world/2014/feb/17/free-trade-deal-with-south-korea-will-help-australian-beef-producers
Lifting the tariff is beneficial for most of the countries involved with trade. When taxes or tariffs in this case, are implemented, economic activity is reduced and deadweight loss occurs. Taxes reduce economics activity because producers and consumers do not see the full benefits from the trade. Before the tariff was lifted, both countries had to pay more for their goods, and therefore did not see the full benefit of trade. Because consumers imported less and producers exported less, deadweight loss was prevalent. Now that the tariff has been lifted, both Australia and South Korea are benefitting because they are both receiving and selling products at more favorable prices. To simplify it, Australia exports cows and South Korea exports cars. The world price for cows is higher outside of Australia, so they will export cows in order to increase revenue. Simultaneously, the world price for cows is lower than the price for cows in South Korea, so they decide to import cows because they are purchasing them at a lower price. Australia can now sell more cows at a higher price and South Korea can buy them at a lower price. The scenario is identical with South Korea exporting cars. Free market trade is favorable for both countries at this point, because economic activity increases.
ReplyDeleteHow could reducing tariffs and restrictions on free-trade be a bad thing? In a hands-off market, prices meet at equilibrium where everyone feels a form of benefit. That fact that governments push tariffs and restrictions is nothing more than impeding on the market in the sake of “making it more equal.” As we learned in N. Gregory Mankiw’s Principles of Economics, nothing is, over ever could be, equal. With the restrictions removed, it would allow the markets to convert back to the natural state without outside interference. If Australia was harmed by the USA trading with ROK then in the future Australia need to up competition and change its market equilibrium to support itself in the new competition field. If Australia’s market doesn’t change it would invite fewer clients and simple disappear. It would be good to keep in mind that while the market changes, it is due to supply and demand shifting and meeting at a new equilibrium than government or third party interference. Also with reduced trade restrictions the amount of dead-weight loss, as previously stated by Madeline Hendrickson, is also reduced. If there isn’t a need for trade restrictions of any kind, then why would taking off said restriction cause a problem?
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