Free Free Trade And Protectionism Essay Example

International trade involves commercial business between countries. It involves exchange of goods, services and capital across international borders. Countries trade with each other because individual countries cannot produce everything they need to use locally or consume everything that they produce. However, trade is not always straightforward. Countries have to choose when protect their domestic industries and when to allow free trade. Free trade is the situation whereby the government allows trade to proceed without any hindrance in restrictive quotas or tariffs. Protectionism, on the other hand, is whereby the government provides incentives for local producers to hinder entry of foreign producers (Bartlett 1).
This simple fact explains why Japan is considering lowering tariffs on imports quotas for products such as pork and beef. Japan plans to cut the tariff incrementally from ¥482 per kg to ¥50 over a period of 10 years (Japan Times 1). This move implies that the decrease in the tariff will be gradual and not instantaneous. This move, however, is strategic. Japan intends to expedite an ambitious Pacific Trade deal (Reuters 1). The deal is part of the Trans-Pacific Partnership (TPP), a 12-nation trade pact. This pact seemingly has the effect of economic integration, which is the unification of economic and trade policies between different countries. Economic integration involves full or partial abolition of restrictive quotas and tariffs to enable free trade. A quota may be defined as a limited quantity of a given product. In this case, the effect of the lower import quota is to make it easier for other countries to trade with Japan. Similarly, an import tariff is the amount of duty or tax levied by governments on the value (freight plus insurance) of imported goods. A lowered tariff has the same effect as a lowered quota. Quotas and tariffs are a form of protectionist trade restriction. However, Japan is likely to feel the effects of the import tariff reduction before the benefits of the intended Pacific trade deal can be felt. Figure 1 illustrates the effect of reduced import tariffs. Considering that Japan faces an international price of Pork of PFT during free trade. The domestic demand at this price of pork is DFT. The domestic supply is DFT, Domestic supply is SFT, while the imports are equal to the value DFT - SFT (shown by the blue line).
Figure 1: The effect of an import tariff reduction in the importing country (Japan).
The effect of lowering or eliminating tariffs leads to an increase in the amount of imported pork of the quantity Dt –St. The new price becomes Pt.
The reduction of the import tariffs on agricultural products will be detrimental to the Japanese economy in the short term as shown in figure 2 below.
Figure 2: Graph explaining free trade
As shown in figure 2, the effect of an import tariff is to increase the price from Pw to P*. The trapezoid A represents the gain to domestic producers due to import tariffs. Consumers, however, lose a value equivalent to A+B+C+D. The government gains a value equivalent to D imposing a tariff. If a quota is implemented, foreign producers will gain D. The net domestic loss will be B+C+D.
On the other hand, all is not lost for Japan. There is an advantage in the recent move to lower tariffs. Figure 3 explains Japan’s situation better. It shows that tariffs cause the price of pork or beef to rise from an arbitrary world price Pworld to Ptariff. Because of this move, the consumer surplus reduces. Consumer surplus for the case of pork or beef is the difference between what domestic consumers are willing to pay and what they can pay for a unit of pork or beef. The producer surplus, on the other hand, increases with the imposition of a tariff. Producer surplus is the difference between the price that the producer obtains for a particular good and the minimum price that he/she would willingly accept for the good.
Figure 1: Societal impact of Japan's reduction of import tariffs
Figure 3 shows that there are gains to be made by the Japanese people from the reduction of import tariffs. Producer surplus (for foreign producers of pork and beef) will decrease while consumer surplus (for the Japanese consumers) will increase.

Work Cited

Bartlett, Bruce. 'Free Trade Vs. Protectionism: Why History Matters'. The Fiscal Times. N.p., 2015. Web. 27 Feb. 2015.
Japan Times. 'Japan Proposes Tariff Cuts On U.S. Pork Imports; TPP Meeting Planned | The Japan Times'. The Japan Times. N.p., 2015. Web. 28 Feb. 2015.
Reuters, 'Japan Considers No-Tariff Quotas For Beef, Pork In Pacific Trade Talks'. The Economic Times. N.p., 2015. Web. 27 Feb. 2015.