International Trade Barriers

International trade increases the number of goods that domestic consumers can choose from, decrease the cost of those goods through increased competition. It allows domestic industries to ship their products abroad While all of these seem beneficial, free trade is not widely accepted as completely beneficial to all parties. Here comes the concept of trade barriers. These barriers are measured that government or public authorities introduce to make imported goods or services less competitive than locally produce goods and services. The most common barriers to trade are tariffs, quotas and non-tariff barriers. A tariff is a tax on imports, which is collected by the government and which raises the price of the good to the consumer.
A quota is a limit on the amount of a certain type of good that may be imported into the country. A quota can be either voluntary or legally enforced. While tariffs and quotas are traditional tools for the purpose mainly to protect domestic industries, there are other barriers which have become more important in the world of today. These trade barriers are seen as the tools of new protectionism. The tools of new protectionism are Voluntary export chain, Technical, administrative, and other regulations, International cartels, Dumping, Export Subsidies etc.

Gains from Trade
International trade brings mutual gains by redistributing product in such a way that both parties than the goods they held before. When nation exports, producers are better off and when import consumers’ surplus enhanced. The gain from trade is shown in the following:

Trade gain from Export (with example on Silver):If the world price of Silver is higher than the domestic price, the country will become an exporter of silver when trade is permitted.
Domestic producers of steel will like to increase their output because the domestic price moves to the world price.
As a result, domestic consumers will have to buy steel at the higher world price.
How Trade affects Welfare in Exporting Country:
* Domestic producers of the good are better off, and domestic consumers of the good are worse off.
* Trade raises the economic well-being of the nation. Trade Gain from Import (with example on Silver)
If the world price of silver is lower than the domestic price, the country will
become an importer of steel when trade is permitted. Domestic consumers will want to buy silver at the lower world price. Domestic producers of steel will have to lower their output because the domestic price moves to the world price. How Trade affects Welfare in Importing Country
*Domestic producers of the good are worse off, and domestic consumers of the good are better off.
*Trade raises the economic well-being of the nation as a whole because the gains of consumers exceed the losses of producers.
Banks Role in Foreign Trade
In international trade, traders have to decide how to settle transaction and, thereby, how to manage associated risk. And in many cases traders need financing assistance. To support these needs arisen in trade transaction, banks play a vital role. Banks are important facilitators of international trade. Banks act as the intermediary agent between exporter and importer. Its role in international trade is to facilitate payment; and to provide finance to exporter and importer. Banks also offer risk management services. Globally four international trade payment methods are used. These are: Cash in Advance; Open Account; Documentary Collection; and Documentary Credit. In cash in advance and open account payment methods, banks role is not mandatory. They only facilitate the payment by transferring fund from importers account to exporter’s account as per the importer’s instruction. But in documentary collection and documentary credit banks play an active role.

Under documentary collection banks act as an agent of exporter to collect payment from importer against delivery of documents. Here bank has no payment obligation. But in documentary credit bank provide irrevocable undertaking to pay against complying presentation. Here bank holds the primary liability to pay. Besides offering payment facility, banks also provide finance to both importer and exporter. Finance or credit provided to the exporters is known as export finance which is generally offered at pre-shipment and post-shipment stage. Importers are provided financing facilities at pre-import and post import stage. Banks shoulder risks for their clients in the process of the facilitation of trade payments and financing services. Moreover, banks offer some foreign exchange and commodity derivatives to minimize different risks associated with international trade transactions.

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