AJB/ASB 4405 – International Financial Management Assignment Sample 2023
Question a
Effects of tariff in international trade
Foreign countries face various types of complications enduring exporting their products for implementing tariffs by domestic countries and it cuts prices to radio sales. Flow of international goods is compressed by imposing tariffs because it increases the price of products relative to domestic products. As cited by Flaaen et al. (2020), it is necessary to promote domestic businessmen and increase export business and reduce import business within the country. Main focus of the government is to increase exports because it is one of the major sources of foreign exchange that directly contributes to the economy of the government. A tariff is a form of tax that is imposed by the government for importing goods which is a common element. Tariffs protect domestic producers and consumers to preserve the security of the nation and economic development.
Importing foreign goods within a country increases demand for foreign products and domestic businessmen face a highly competitive market scenario for it that it is necessary to provide a competitive advantage to national organizations in order to develop the economy of the country. Tariff is a wink barrier for international trade because international computers are to pay a large number of funds to government two operating businesses in their country which restricts international trade. As opined by Abbas (2019), relative domestic products prices are lower than international products because consumers prefer those National products more than foreign goods which create an inappropriate competitive situation for international organizations. International trade required a large number of friends because of tariffs and small or medium organizations are unable to participate in international business due to a lack of proper infrastructure to maintain tariff overheads and sustain an international business.
Importance of international trade
Government always wants to protect their domestic business because imported goods are cheap which plays so many complications in the market economy and reduces the flow of foreign exchange within the country. Implementation of tariffs here’s to maintain economic competitiveness in the market. International trade was restricted by tariffs and strategic significance with interest rates for national security was maintained. As cited by Hutson (2021), the World Trade organization maintains international trading relationships between countries, however, it has granted implementation of tariffs on European Union products in order to save companies from being mistaken by the US government. The European Union has also taken the same strategy to promote the usage of British products which has developed the European economy. This deal is not successful at all because it has affected the balance of international Trade and availability of Steel and aluminium products.
Question b
Tariffs can sometimes harm the country imposing the tariffs
Tariffs intend to restrict imports but you save domestic consumers and producers. International trade allows companies of different industries to promote their products in different regions and increase production quantity in order to reduce per-unit cost of products. In this way, companies are able to maximize profitability and access a large number of potential consumers in the international market. As opined by Wittig (2021), most countries do not allow free trade because it keeps effects on domestic consumers’ behaviour and reduces profitability of domestic companies. Trade agreements between countries lead to the development of the economy of a country and improvement of international trade that is dependent on tariffs (Ft.com, 2022). International trade is completely beneficial for exporting parties because it creates a competitive advantage for them.
Contribution of tariff on domestic producers and consumers
The US government disrupted leveraged trade to protect the policy of “America first” and implemented tariffs in 2018 which have impacted negatively on us itself. Implementation of tariff restricts international engagement of business which reduces trading partners and affects international business environment. The European Union was affected by implementation of tariff union aluminium and steel by the US government on several trade partners. As cited by Berg (2021), President Trump has imposed tariffs on steel and Aluminium by 25% and 10% respectively, which stopped trade expansion in the US. The US government has said that there are some examples for a few countries and they will get relaxation in tariffs that include European Union-based companies. The European Union is the largest trading block in the world and it includes more than 27 members in maintaining an advanced relationship with the United States for investment and bilateral trade (Ft.com, 2022).
Implementation of trips and ability to control ever-changing situations affects the domestic environment of business. Protection of domestic consumers and producers is necessary however governments have to promote international trade in order to satisfy their population by providing their needs (Ft.com, 2022). Environment is different as per geographical locations that it is hard to improve the economy of a country by reducing competitiveness in the market for domestic companies and creating barriers for international exporters. Tariffs intend to reduce imports however it is one of main sources of operating business during uncertainty.
Question c
Critical evaluation of the tariff deal
Aluminium and steel are used in the airplane industry however the US government has imposed a high percentage of tariffs on European products which has affected the airline industry. As opined by Irwin (2017), the US government grant to the European Union has decided to implement subsidies for our airline industry in their tariffs to improve international trade. The World Trade organization has allowed the United States to increment tariffs amounting to around 7.5 billion dollars on European products in 2019. The World Trade Organization has proof tips on US imports by the European Union amounting to almost 4 billion dollars (Ft.com, 2022). These days have affected the international hearing industry because companies are unable to access free trade opportunities for business expansion. The Federal Reserve Bank adopted a new strategy to reduce their inflation and targeted to improve the value of a currency.
Evaluation of US and EU approach in imposing tariff in 2018
The European Union imposes tariffs on US products because the US has passed tariffs on European products which have affected consumers’ behaviour. Selling of European aluminium and steel has decreased because consumers are unable to afford extra parts and tariffs. In this way, companies have faced a large amount of loss in this period. The European Union was focused on counter-tariffs to the US government which has influenced international traders to reduce their prices for a long period to maintain their competitiveness in the market (Ft.com, 2022). During the first two years of implementing tariffs by the US government, businessmen of this country have not reduced their prices which have affected the European Union and the first non-negligible welfare loss. A big conflict has arisen during 2019 for implementing new tariff rules to reduce inflation of the American dollar.
The Trump administration has promoted buying American products and hiring Americans for jobs because it is necessary to develop the economy of a particular country. As cited by Lashkaripour (2021), European Union was affected by this love and took initiatives to remove American products in the United Kingdom. A high percentage of tariffs are imposed on U.S. products which has affected the World Trade environment. This dual has played a vital role in employment of Americans; more than 147000 Americans get their job for this Steel (Ft.com, 2022). More than 6.5 million Americans are working in Steel industries however implementing around 25% tariffs on steel products has affected those employees. There are a few positive sides of this day however it is not a sustainable solution to maintain competitiveness of international trade by implementing uncontrollable tariffs.
References
Journals
Abbas, Q., 2019. The economic effects of 2018 US Steel Tariffs: An Application of Event Study Methodology. Available at: https://ir.library.oregonstate.edu/concern/graduate_projects/kd17d026p
Berg, Z.R., 2021. How a tariff-based trade policy affects domestic prices, import volumes and welfare: an empirical analysis of the eu´ s retaliatory tariffs on the Us (Doctoral dissertation).Available at: https://run.unl.pt/handle/10362/122792
Flaaen, A., Hortaçsu, A. and Tintelnot, F., 2020. The production relocation and price effects of US trade policy: the case of washing machines. American Economic Review, 110(7), pp.2103-27. Available at: https://www.aeaweb.org/doi/10.1257/aer.20190611
Hutson, K., 2021. The Politics of Taxation: An Economic Analysis of Politically Motivated Tariffs Placed on French Wine by the United States. Available at: https://egrove.olemiss.edu/hon_thesis/1716/
Irwin, D.A., 2017. The false promise of protectionism: Why Trump’s trade policy could backfire. Foreign Aff., 96, p.45.Available at: https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/fora96§ion=61
Lashkaripour, A., 2021. The cost of a global tariff war: A sufficient statistics approach. Journal of International Economics, 131, p.103419.Available at: https://www.sciencedirect.com/science/article/pii/S0022199620301343
Wittig, S., 2021. Transatlantic Trade Dispute: Solution for Airbus-Boeing Under Biden?. Intereconomics, 56(1), pp.23-31. Available at: https://www.econstor.eu/bitstream/10419/231974/1/10.1007_s10272-021-0947-z.pdf
Websites
Ft.com, (2022), GLOBAL TRADE. Available at: https://www.ft.com/global-trade?segmentId=776b81d7-dd92-c731-e669-99cdd37d3a96&page=7
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