• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Economics Commentary - U.S. Concerned Over Indian Trade Barriers

Extracts from this document...

Introduction

U.S. Concerned Over Indian Trade Barriers Tensions are increasing between the U.S. and India over concerns of international trade1 and India's restrictive trade policy. Both India and the U.S. need each other to "meet ambitious export targets" because of fears of global imbalances sparking a standoff. International trade results in countries having comparative advantage over the other. Comparative advantage, a theory developed by David Ricardo, is the ability to produce a good at a lower opportunity cost that another producer (Mankiw). Comparative advantage is based on the country's resources and is the idea that if countries produce the goods that they specialize in then it would result in an efficient use of the world's resources. ...read more.

Middle

Trade also results in domestic suppliers losing out. This is why trade barriers and protectionism4 are employed. Trade barriers are any government policy or regulation that restricts international trade (Mankiw). In this case, India has placed tariffs5 on imports from the U.S. (See Graph Below) The graph above illustrates how after the tariff is placed, the market price rises causing a decreased quantity demanded. The law of demand says when other things equal, the quantity demanded of a good falls when the price of the good rises (Mankiw). (See Graph Below) Domestic producers increase supply after price increases, and foreign producers supply for the rest of the demand. Foreign producers' revenue falls because they have to pay tariffs to the government. ...read more.

Conclusion

The U.S. has said that it would ease restrictions on exports of high-technology goods to India in recognition of strong economic ties. The result of a tariff is reduced surplus and increased price. Tariffs can hurt an economy by reducing trade but also help protect some domestic jobs at the expense of consumers. Critics argue that trade barriers create fewer choices for consumers and the distortion of comparative advantage, resulting in the unproductive use of the world's resources. The Indian and U.S. governments should eliminate trade barriers so that they may reach the effectual outcome that would allow them to allocate their resources properly and efficiently. By eliminating tariffs, both countries could only produce what they specialize in and still obtain everything else they need from imports. Also, instead of worrying about trade barriers, the governments should invest more in education and make their workers more efficient. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. World Economics assignment. The core economic issues that are focused on in this ...

    What's more, it decreases the cost of foreign investment to dedicate domestically. Analysis on Element 13 According to wikipedia, "Least Developed Country (LDC) is the name given to a country which, according to the United Nations, exhibits the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world.

  2. Extended Essay Economics

    The effect of a price ceiling is shown below. A firm may be forced to sell a product at a price below the free-market equilibrium and this may result in a shortage of the product. IV. The effect of the fixed exchange rate on Dr.

  1. An Investigation of Vietnam's Barriers of Economic Growth and Development

    Political Structure/Corruption To date, the government continues to maintain control of the largest and most important firms in the country. The government recently issued new limitations for state-owned enterprises (SOEs) on the extent at which they can diversify away from their core business.

  2. Growth and Development Problem Set - IB Economics exam questions and answers.

    For example, GDP per capita is an indicator of the level of output or income per person. The number of years of life expectancy is an indicator of the state of the health of a population. The degree of literacy is an indicator of the level of education in the country.

  1. Macro Economics Notes

    However, now lets consider two different countries - Germany and Turkey. In this case the GDP of Germany is 3 times higher per capita than Turkey. While there are limitations of GDP analysis, the vast difference between the GDP rates of each country is significantly large in order to say conclusively that Germany is a richer than Turkey.

  2. case study economics

    provide less of their services but the quality and efficiency may be less and improvements may not be made as they are Government organizations and do not have the funds to do so. Figure 3 shows that because of the low prices the demand for the service increases to Q2 and the healthcare providers can only provide services till Q*.

  1. Role of ICT for "Make in India" government initiative.

    at cutting down its dependence on foreign vendors and thereby increases the indigenization of defence sector to be a part of ?Make in India? initiative E-Commerce : India has nearly 250.2 Million Internet users as of June 2014. Although Indian E-Commerce markets are low when compared to other markets like

  2. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    What were the three parts to the Industrial Revolution? How did each of these affect trade and the growth of the European economy? The industrial revolution marked a time of exponential growth beginning in Great Britain and eventually spreading across the globe.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work