The Geography of International Trade. Tariffs and Trade Barriers

Archaeological discoveries of artifacts buried thousands of miles away from where they were manufactured suggests that long-distance trade has taken place since ancient times. Large-scale regular international trade, however, began only in conjunction with the global diffusion of the world economy following the Age of Exploration.

Since the eighteenth century, the countries of the world have paid close attention to the development and regulation of international trade. Of course, not all countries have adhered strictly to free trade. Most have tried to balance free-trade objectives with policies intended to protect or benefit their own industries in the face of foreign competition.

International trade increased enormously during the latter half of the twentieth century. By the 1980s, nearly one-quarter of all goods and services were destined for international markets (Figure 9-10). The expansion of international trade is the result of several factors, including improvements in international transportation and communication technology, the activities of transnational corporations and production enterprises. The end of colonialism, and international agreements that discourage countries from restricting international transactions.

Figure 9-10 The Geography of U.S. Automobile Exports and Imports. Although only a small percentage of American automobiles are exported, they are sold to customers in many different countries. In the meantime, Americans buy many vehicles imported from Japan, the European countries, and other places

The expansion of international trade has magnified the importance of comparative advantage in industrial production. The principle of comparative advantage stresses relative rather than actual advantage as the basis for trade. It implies that a particular region will export the goods it can produce at the lowest relative cost. In the absence of comparative advantage, a region will tend to abandon production, relying instead on imported goods.

We have already run across the principle of comparative advantage in the context of agriculture and industrial development. We noted that crop production in the United States is increasingly concentrated on the highest quality lands. Meanwhile, areas with marginal soil productivity have been abandoned. In our discussion of industry, we noted the increasing concentration of items such as automobile components. Firms distant from Detroit and other large markets are at a comparative disadvantage, and many have gone out of business.

Tariffs and Trade Barriers.The continued expansion of international trade dependson free trade between countries. Frequently, however,countries make efforts to restrict free trade in order toprotect domestic industries or consumers. These effortsmay involve the enactment of tariffs. A tariffis a tax orduty exacted against a particular category of merchandiseentering or leaving a country. The intent of a tariff is todiscourage consumers from purchasing foreign manufactured goods by increasing their price. Thus, tariffs are intended to increase demand for domestic products.

Today, some Americans have called for the enactment of a tariff against foreign-made automobiles and other large consumer items. Naturally, advocates of the American automobile industry support the imposition of such a tariff. The recent popularity of foreign-manufactured automobiles has stemmed from their relatively high fuel efficiency, reliability, and low cost. The lower cost of many foreign cars results partly from the relatively low wages paid to foreign automobile workers. The popularity of foreign cars among American consumers has put U.S. automakers at a competitive disadvantage.

Advocates of a tariff on foreign cars believe that it will help the American automobile industry get back on its feet. If a tariff is indeed imposed, the cost of a foreign automobile will increase relative to its American-made counterpart. Higher prices would discourage consumers from buying foreign cars and would therefore encourage the production of American vehicles.

Of course, imposing a tariff on foreign cars is not without risk. The Japanese strategy of export-led industrialization depends on free trade abroad coupled with protection at home. In many cases, tariffs are imposed in reciprocal fashion. The Japanese might retaliate against a tariff on their automobiles or computers by imposing a similar tariff on American products. Were that to occur. the benefits enjoyed by the American automobile industry might be offset by costs imposed on other sectors of the American economy.