• 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 ...

    in 2001. In the end of 2006, Chinese government put the policy to take the exchange rate, it means originally 100 US dollars exchange 826 RMB, now only swap about to 800 RMB. In this way, they can make use of less money to change more products of Chinese in order to offset the quota of currency.

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

    Conversely, policy changes tend to take a long time to be put into effect and SOEs will take an equally long period of time to respond to such directives. One way to overcome this conservatism, the minimal or gradual change in society, is if the government gives up political control

  1. Macro Economics Notes

    President Obama's 1 trillion fiscal stimulus package, borrowed from the Chinese will lead to a rise in interest rates which will make it more difficult for companies and individuals to borrow money. Economically active population People who are willing and able to work, within the workforce.

  2. Allocation of Resources

    The mechanism for this, Smith saw as being the free price system.[1] The concept of the Invisible Hand is nearly always generalized beyond Smith's original discussion of domestic versus foreign trade. Smith himself participated in such generalization, as is already evident in his allusion to "many other cases", quoted above.

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

    Strengths and weaknesses of HDI Strengths: * Promotes human dimensions of well being of individuals o Some countries with low levels of income can still achieve moderate levels of human development, and vice versa * Widely used summary measure of human development that has stood test of time Weaknesses: *

  2. case study economics

    Whereas the demand for public healthcare is very high as the price is very low or minimal. (Figure 1) Figure 2 - When the prices are low then the suppliers supply less of their goods. In the case of healthcare (public healthcare), the providers of this services may not be

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

    United States and United kingdom, but it is growing at faster rate with arrival of large number of new entrants. Indian government has recently launched a innovative, low cost National Small industries corporation?s Online E-Commerce shopping portal to sell and buy goods manufactured by Ministry of Micro Small and Medium Enterprises.

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

    However, the Portuguese found they could make considerable amounts of gold transporting slaves from one trading post to another, along the Atlantic coast of Africa. Muslim merchants had an uncontrollable appetite for slaves, which were used as porters on the trans-Saharan routes with frequent casualties along the way and for sale in the Islamic Empire.

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