Global issues and events influence economic activities.
10. Government actions, such as tariffs, quotas, subsidies, trade agreements and membership in multinational economic organizations, significantly impact international trade.
International trade can be affected by government actions. When imports are restricted by public policies, consumers pay higher prices and job opportunities and profits in exporting firms decrease.
Tariffs and import quotas are generally supported by producers of domestic products. A tariff is a tax on imported goods. Import quotas limit the number of products allowed into a country. The intent is to make domestic goods more competitive. However, as history has shown, affected countries can reciprocate with tariffs or import quotas of their own, consequently impacting international trade.
Some government subsidies significantly impact international trade. Since the 1930s, the U.S. has provided subsidies in the form of price supports to farmers to help them maintain a good standard of living. The government does this by paying farmers not to grow crops and purchasing surplus agricultural products for storage. This lowers the supply of the product and keeps the price at a level to help the farmers. However, this makes it difficult for foreign countries to sell the same or similar products to the U.S.
There are many multinational economic organizations such as the:
- Asia-Pacific Economic Cooperation;
- European Union;
- International Monetary Fund (IMF);
- Organization for Economic Co-operation and Development (OECD);
- Organization of the Petroleum Exporting Countries (OPEC);
- World Bank; and
- World Trade Organization (WTO).
Their purpose is to protect and/or support the economic interests of their member countries. For example, OPEC aims to control the price and supply of the oil its member countries produce. Its decisions affect international trade.
Expectations for Learning
Analyze how a nation’s economic policies, trade agreements and/or memberships in multi-national organizations impact international trade.