Which Factors Discourage International Trade?

Introduction

International trade has become increasingly important in recent years as countries look to expand their markets and take advantage of the opportunities offered by globalisation. However, there are a number of factors that can discourage international trade and impede economic growth. In this article, we will examine five of these factors: high tariffs, currency exchange rates, political instability, customs regulations, and government policies.

High Tariffs

Tariffs are taxes imposed on goods imported from other countries. They are designed to make foreign products more expensive, thus creating an incentive for people to buy domestically produced goods. High tariffs can have a significant impact on international trade, as they make foreign products more expensive and therefore less attractive to consumers.

For example, the United States recently imposed tariffs on steel and aluminum imports from China. This has made Chinese products significantly more expensive, leading to a decrease in demand for them and a corresponding drop in Chinese exports. This has had a negative impact on both the Chinese economy and global trade.

Currency Exchange Rates

Currency exchange rates are another factor that can influence international trade. Exchange rates are the rate at which one currency is exchanged for another. Fluctuations in exchange rates can make certain products more or less expensive in different countries, influencing consumer demand. For example, if the value of the US dollar rises relative to the euro, then European products become more expensive for American consumers, making them less likely to purchase them.

Exchange rate fluctuations can also make it difficult for companies to plan for the future. If a company is expecting to export goods to another country, it needs to know what exchange rate it will be dealing with in order to ensure that it makes a profit. Uncertainty over exchange rates can make it difficult for businesses to accurately forecast their income, leading to a reduction in international trade.

Political Instability

Political instability is another factor that can discourage international trade. Unstable governments can create uncertainty, making it difficult for companies to do business in those countries. This can lead to a decrease in investment, as companies are unwilling to risk their money in a volatile political environment.

For example, political unrest in Venezuela has caused a sharp decline in foreign investment. Companies are wary of investing in the country due to concerns about the stability of the government and the potential for violence. This has resulted in a decrease in international trade, as companies are reluctant to engage in business activities in a politically unstable environment.

Customs Regulations

Customs regulations can also have a negative impact on international trade. These regulations are often complex and vary from country to country, making it difficult for companies to comply with them. Additionally, customs regulations can be costly, as companies must pay fees and taxes when importing or exporting goods.

For example, the European Union’s customs regulations are notoriously complicated and can be costly for companies looking to do business within the region. This has led to a decrease in international trade, as companies are unwilling to invest the time and money required to comply with the regulations.

Government Policies

Government policies can also have a negative impact on international trade. Governments may impose restrictions on imports or exports, making it difficult for companies to do business in certain countries. Additionally, governments may provide subsidies or other incentives to domestic companies, making it difficult for foreign companies to compete.

For example, the US government recently imposed tariffs on Chinese imports, as well as providing subsidies to US manufacturers. This has made it difficult for Chinese companies to compete, resulting in a decrease in Chinese exports to the US and a corresponding drop in international trade.

Conclusion

In conclusion, there are a number of factors that can discourage international trade. High tariffs, currency exchange rates, political instability, customs regulations, and government policies can all have a negative impact on global commerce. It is important for companies to understand these factors and be aware of how they can affect their ability to do business abroad.

Fortunately, there are solutions available for overcoming these challenges. Governments can reduce tariffs and simplify customs regulations. Companies can take steps to mitigate the risks posed by currency exchange rates and political instability. By understanding the factors that can discourage international trade and taking steps to address them, companies can increase their chances of success in the global marketplace.