General

International trade is the exchange of goods between countries. International trade allows consumers around the world to purchase French wine, Colombian coffee, Chinese televisions, and German cars. International trade between countries creates the global economy, and prices are influenced by various factors, such as global events, exchange rates, politics, and protectionism. Political changes in one country can affect the manufacturing costs and employee salaries of another country. The result of this transformation may increase or decrease the prices of daily imported products for local consumers.

The impact of tariffs and trade barriers

Ideally, trade with other countries increases the number of goods consumers can choose from, and cross-border competition will lower the cost of these goods. Dumping is an international trade practice that is prevented through the strategic use of tariffs. Dumping refers to the export of large quantities of goods by trading partners that are cheaper than domestically produced cheap goods, in order to gain a competitive advantage in foreign markets. In order to slow down or stop dumping low-priced international goods, the government can impose tariffs or taxes on these imported goods.

A common complaint about international trade is the low cost of foreign labor and the lack of overseas regulations on safety and quality. Tariffs can be imposed to protect consumers from potential dangerous products (such as contaminated food that may include imported meat) or inferior products (such as defective airbags). The quality standards and regulations from one country to another may vary greatly. International trade should promote mutual benefit and positive relations between countries, but sometimes the opposite is true. Countries may also establish tariffs to retaliate against trading partners they believe violate rules or foreign policy objectives.

The Impact of Politics and Protectionism

In some cases, the government may impose tariffs on imported goods for political reasons. It may hope to fulfill campaign promises, promote growth in specific industries, or make strong statements to members of the international community. The government may adopt protectionist policies and restrict trade through tariffs, as it is concerned that international trade may threaten the domestic economy by harming specific industries. Although this type of protectionism is effective in the short term, it is often harmful in the long run as it makes countries that raise tariffs less competitive internationally.

Trade protectionism will ultimately weaken the industries it aims to protect. If there is no competition in the domestic industry, manufacturers may not strive to maintain market competitiveness. The result is that compared to similar international products, the quality of domestic products may decrease. Continued trade protectionism policies may ultimately lead to a slowdown in the industry, and domestic job opportunities will be lost to global suppliers. Protectionism is an expensive proposal, as governments often choose to subsidize industries and raise the prices of inferior products.

The impact of foreign currency exchange rates

The exchange rate of one currency against another depends on market conditions and the overall health of the global economy. Currency exchange rates also affect international trade. If a company in a country/region wants to import goods from another country/region, they will pay for these goods in the currency of their trading partners or in economically stable currencies such as the US dollar, British pound, Japanese yen, or euro. It is better to use a so-called hard currency to pay for goods because they are stable and not vulnerable to economic shocks.

Countries can further influence exchange rates through fiscal and monetary policies. Policies that affect currency exchange rates may lead to disagreements. A country may believe that another country is deliberately manipulating its currency to gain a trade advantage. When two or more countries (such as the United States and China) have differences or conflicts, it will affect international trade, which in turn will affect each country's exchange rate. Economists hold different opinions on how to address the currency fluctuations that determine the price of imported goods. Many experts believe that efforts to restrict trade in favor of domestic imports do more harm than good.