International Trade and Trade Barriers

When exchange is voluntary and free, both the buyer and the seller benefit. When you buy milk, the milkman earns money and you have milk without a cow. Voluntary free trade creates assets because it is mutually beneficial. Asset is the total value of everything owned.

In an experiment conducted at the Foundation for Teaching Economics, a group of participants were given random objects and asked to value them. Then the group members freely bought and sold their objects. After a while, the group was again asked to value the objects they owned. The second sum of values was higher than the first. Thanks to voluntary free exchange, asset was created without adding anything new.

International Trade

International trade generates mutual gain and wealth creation. Before the Second World War, trade agreements between nations were mostly mutual. Private benefits were mutually preserved and trade barriers such as import and export duties were mutual. However, the benefits of free trade were not understood and nations turned to policies of isolation and protection of the domestic economy after the war.

Towards the end of the Second World War, many representatives of the free industrialized world gathered in the town of Bretton Woods in New Hampshire to address economic problems that often cause international disputes. The conference created the International Monetary Fund (IMF) and the World Bank, but did not produce a trade organization to encourage international cooperation. In 1947, many countries, including the United States, came together to form the General Agreement on Tariffs and Trade (GATT). The goal of GATT was to reduce trade barriers so that member countries could benefit equally from free trade.

With the growth in international trade, living standards in the contracting countries have increased. In 1995, GATT became the World Trade Organization (WTO). Under the rule of GATT and then the WTO, more and more countries came to support the reduction of barriers and free trade. As a result, international trade continued to expand and many countries took advantage. For example, Ireland, one of Europe’s poorest countries, joined the EU and became one of the richest thanks to international trade.

Situations Adverse to International Trade

Despite the obvious benefits, there are also those who are against international trade:

• Environmentalists worry that production will increasingly concentrate in countries where there are fewer regulations to protect the environment from pollution and damage to natural habitats.

• Trade unions oppose free trade, arguing that production will be shifted to low-wage countries where there are not many unions, and therefore their members will be negatively affected.

• Human rights activists oppose free trade because of the shift of production to countries where working conditions are very poor and often inhumane, where workers cannot find the same rights and privileges in industrialized countries.

• Politicians and voters concerned about the damage to national sovereignty oppose free trade because decisions affecting the nation are made by an international organization that is not subject directly to the public.

Trade Barriers

Countries sometimes impose taxes or limits on international trade, or even prohibit it. Why is that? Although voluntary trading is mutually beneficial, sometimes only a certain group carries its costs. The public may be overly interested in protecting their industries, increasing tax revenues, protecting the environment, or even creating social change. Sometimes one country may limit its trade in order to punish another country. Customs duties, quotas, and embargoes are among the tools a country uses to fulfill its various goals.

Customs Duties

Customs duty is a trade tax. It can be used to increase government revenues or to benefit a particular sector of the economy. If your industry is facing foreign competition, you can put pressure on Congress to impose customs duties on imports. For example, the US steel industry was protected from foreign competition for years, thanks to tariffs. In 2007, India imposed tariffs on rice exports to avoid famine. The Smoot-Hawley tariff, introduced in 1930, was intended to protect American industry and to increase tax revenue much needed by the state.

Customs tax, on the other hand, has some downsides:

• Customs duty often has anticompetitive effects, supporting waste and inefficiency.

• Customs duties to generate revenue often cannot increase tax revenues because people stop buying expensive imported products.

• Imposing customs duties on exports can give producers a reason not to produce.

Quotas

Quotas are limits in trade. Rather than imposing a tax on imports, a quota may be applied to limit the number of goods imported. In the 1970s and 1980s, American car manufacturers and labor unions supported government quotas on foreign car imports to limit competition and protect their own businesses. The result was higher price and lower quality.

Ultimately, German and Japanese companies set up their factories in the USA. Thus, domestic producers faced more competition in their own countries. Trade unions also suffered as foreign companies set up their factories in states where the unions were less effective.

Quotas also create other problems:

• They do not bring tax revenue to the state, they bring more responsibility.

• Those who try to avoid quotas encourage smuggling, thus creating a black market.

• Quotas can be manipulated by foreign firms to restrict competition from other foreign firms. For example, if a quota is applied to German cars imported to the USA, the German company that filled the quota first would prevent other German companies from competing in the American market.

Embargoes

An embargo is a ban on trade with another country. The purpose of an embargo is usually to punish a country. The embargo we are most familiar with may be the US embargo on Cuba. After the communist revolution and the Cuban Missile Crisis, the US enacted an embargo banning all trade with the islanders. Even if these events are far behind, the embargo continues. To understand why it still continues, we can think again about who is benefiting from the trade embargo.

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The Biggest Financial Problem In The World Economy

There are many definitions of intelligence. To me, the most practical definition is as follows: “Intelligence is the ability to solve problems.” If you can solve math problems at school, you are considered smart. Outside of school, if you can fix a car, it is assumed that you have automotive intelligence. When it comes to money, it is thought that the more you can solve bigger financial problems, the higher your financial intelligence is.

Today, the world is facing a number of serious financial problems. Many of these are linked, while some are independent problems. Some of the most urgent problems are:

  1. The fall in the value of the dollar
  2. Increase in national borrowings
  3. The exponential increase in personal debts
  4. Increase in oil prices
  5. The widening gap between the rich and the rest
  6. Salary drops
  7. Export of jobs and workers
  8. Melting of savings
  9. And the most important of all is the lack of financial education

The questions that need to be answered urgently are as follows:

  • What can we do?
  • What are the solutions?
  • Is our Financial IQ high enough to solve these problems?
  • How can we avoid being the victim of these problems?
  • How can we protect our families and loved ones suffering from these problems?

Many of today’s financial problems still exist because they were not resolved when they emerged. Unfortunately, instead of raising the Financial IQ of the population, people were taught to wait for the state to solve their personal financial problems.

“We need to look after those who can’t take care of themselves.” you might say. I agree with this. As a civilized society, we must care for the needy. However, many people may be able to take care of themselves if they are trained. For this, the Financial IQ of the societies should be increased.

Due to the low financial IQ solutions found in the past, the demographic structure of today is the impoverishment of the people except the rich; even though more people earn more money. Unfortunately, the United States is not the only country moving in this direction. Many of the world’s economies are transforming into two-class societies: The rich and the poor… The upper class or the masses…

Simply put, the world is on its way to becoming a well-educated place of rich and poor people. The middle class is endangered. The real problem is that the world is beginning to consist of people who are good people, well-educated, hardworking, but still expect the state to take care of them when they retire.

Apart from these, there are two other problems: The first is that even Ponzi Scheme is not known what it is, since nothing related to monetary matters is taught in schools. The second, most of the people now deserve to be paid because they have made all their retirement payments.

However, if each of these people in the US starts receiving only $ 1,000 per month under Social Security and Health Insurance, the government will have to allocate an additional $ 75 billion per month for salary payments. This amount is equivalent to the cost of Hurricane Katrina or the Iraq War. The good news is we still have time to prepare for the impending financial hurricanes.

You can feed a person for a day by giving fish. And this is what we have been doing as the world for a long time. This is the thought that underpins Social Security and Health Insurance Services.

I want to encourage you to get rich because the world is turning into a two-class society; only rich and poor.

The middle class in Western nations is slowly but surely disappearing. If you want to stay in the middle class, you may need to consider living in China or India. These two countries are making their middle class bigger, rather than destroying it. But keep in mind that middle class members in China or India generally don’t live a better life than many poor Americans. This is because the middle class is too crowded in these countries. 

The rich will always spot opportunities, while the poor will bury their heads in the sand and pretend nothing has happened.

Let’s think a little bit. Let’s consider how we can take advantage. 

Can you identify the opportunities that may arise from this economic order?

Let me know what you think in the comments below.

You can also read WHY YOU NEED TO INCREASE YOUR FINANCIAL IQ if you are interested in. In this post, I have outlined how to improve Financial Intelligence.

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