Executive summary
The current study discusses the impact of politics on trade where the cross country ties and the political referendums such as BREXIT have been taken as example. The free trade agreements between nations have made trade a global subject. The goal has been to shift towards a global market, whereas the trade aspects of all nations are controlled by a single authoritarian body. The global platforms are also seen to strengthen the political ties. However, it often takes away the sole proprietorship from a nation to regulate its affairs. One such recent retaliation against global trade was depicted by Britain in the form of BREXIT (theguardian.com 2018). It was a huge political move on the part of Britain which had been followed by a series of uncertainty and trade war fears. The consequences and effects of political changes on trade have been discussed under the broader context over here.
The current assignment discusses in details the impact of politics on trade. The political relationship between countries has been a guiding factor in the promotion of free trade. In the current study trade has been seen as one common umbrella which binds different countries together. The free trade relations present between countries allows for easy exchange of resources, which further promotes the objectives of global business. The free trade could be used for the upliftment of the third world countries or developing nations. The current assignment discusses the objective of being part of a single world market. One such example was BREXIT where Britain decided to take a leave from the European Union. The outward movement from the single market had affected the trade and businesses of UK significantly (forbes.com 2018). Additionally, the change in the trade laws from time to time also brings forth a number of trade limitations for the countries. Some of these are limiting the number of imports, as well as raising the price of goods. Some of these have been discussed in the present context with the help of facts and statistical figures.
Free trade between countries is affected by the presence of multiple barriers such as tariffs, quotas, subsidies and embargo. As mentioned by Jensen and Snaith (2016), the imposition of heavy import duties on imported goods can protect the local manufacturers from added competition. However as supported by Mendez-Parra et al. (2016), high import duties further limits the volume of the import from the respective countries. The limited foreign exchange earned can hamper have a pronounced effect upon the economy of the importing country. For example, President Obama had announced a 35% tariff on goods imported from china (theguardian.com 2018). The situation was favoured politically in lieu of maximizing the profits from international trade (Trommer 2017). The high import duties earned from the importing country could be used by the government to raise the subsidies to the local manufacturers. This further led to china imposing high import duty on goods manufactured in US. The BREXIT was proposed and voted in favour of to gain trade sovereignty along with reducing the perils of unemployment in UK. Additionally, the EU failed to address the economic problems, which have been developing since 2008. As a result the high duties imposed on the imported products and commodities affected the global affordability statistics, where the end customers suffered the most. As commented by Jensen and Snaith (2016), the BREXIT lead to exit of the Britain from the European economy, thereby limiting free exchange of the UK based goods between nations. Additionally, the high prices fixed upon UK based imports made earning foreign exchange difficult. The restrictions imposed upon free trade caused many people to lose their jobs.
Trade barriers
The trade policy refers to the global exchange of commodities and goods including quotas, tariffs, and import and export regulations. The trade policy ensures that smooth and hassle free trade is maintained between different countries. They are mostly drafted with a vision of reducing trade barriers between nations. As supported by Owen (2017), countries with less restricted trade policies have seen better economic growth. However, as argued by Inglehart and Norris (2016), the removal of the trade barriers or drafting a free trade policy could lead to instability of the domestic economy due to more dependence upon global market. The short term or intermittent trade policies have been proved to be beneficial in the development of a structured employment. The high tariffs imposed help in keeping the domestic plants competitive. However as argued by Kee et al. (2013), the increasing imports, exports are not always directly proportional to growth in GDP. On the contrary low tariff rates have often been associated with less unemployment rates.
The importance of the trade policy could be further explained with reference to BREXIT as the post BREXIT trade policy emphasized upon negotiating free trade agreements with developing nations. Post BREXIT the UK companies are able to trade with EU on a quota free and tariff free basis. However, as suggested by Fouda (2012), there is still a risk of EU imposing quotas which may limit the amount of goods and services to be sold in Europe.
There is a new term called protectionism which is ruling the trade industry for now. Though the term and the resultant consequences are effective in short the term, they are not equally effective in long run. As mentioned by Mendez-Parra et al. (2016), the ideas of protectionism has been implemented with a view to reinforce the domestic trade market. It has been expected to promote structured employment within the country. However, as argued by Jensen and Snaith (2016), it may itself act as a trade barrier in the long run by reducing the sources and the chances of competition. The view had been recently promoted by US president Donald trump where, as per him the implementation of protectionism view can save the country from unnecessary international trade (theguardian.com 2018). The increasing protectionism has been further seen to slow economic growth. As reported by Holmes et al. (2018), it will further lead to layoffs among 12 million US workers who owe their jobs to exports. To some extent, the BREXIT move was in favouring the view of protectionism where it has exited the European market to emerge as a more strong and independent nation.
Trade policy
The impact of politics has been noted in free trade of steel between nations. Recently Donald trump has imposed 5 percent tariff on steel and 10% of aluminium (forbes.com 2018). The move was seen to raise fear of trade wars, where EU and China could retaliate in a similar manner. As s reported by Portes (2016), the United States is the world’s largest steel importer where it imported 26.9 million metric tons of steel in the year 2017 (statista.com 2018). It could result in huge number of consequences such as US consumers facing higher costs for purchasing and buying steel products. The EU has already retaliated by placing high tariffs on US exports such as bourbon and Levi jeans. As mentioned by Fouda (2012), the rise in prices will reduce the disposable income. Most of the US industries are based upon steel as a source of raw material. Therefore, the intermittent shutting down of the factories and industries could lead to economic instability.
The UK trade has taken a serious drift post BREXIT where it has emphasized more upon the development of free trade agreements with the developing nations. Post BREXIT it has applied higher degrees of freedom in imposing heavy import duties in foreign goods and product. This has been seen as a move to revive the domestic market where the heavy duties imposed on the imported items can be used as subsidies to enhance the growth of the local marketers. The BREXIT move was seen to strike independent trade goals with EU and its 27 member countries. In the year 2015, the EU accounted for 43.7% of UK goods and services and 535 of UK imports (statista.com 2018). Hence, EU member counties can be seen as UK’s largest and most important trade partner. In the e year 2015, the UK’s deficit on trade in services and goods with EU was valued at 23.4 British pounds (statista.com 2018) . The UK citizens most recently mentioned the importance of access to a US single market more than delimiting the immigrants from entering the UK border. UK was free to impose heavy import duties on import goods and commodities. As argued by Marshall (2016), such a move possesses higher risks, as the EU might retaliate by limiting the quota of the UK exports. In this respect, Britain would need to agree trade deals with 50 plus countries which requires huge amount of time and resources to be bestowed which would end up limiting the trade volume (forbes.com 2018).
Protectionism
There have been large scale consequences of the rejection of trade deal proposed by British Prime Minister Theresa May. Theresa May objected to stay in the customs union rather she place more importance upon maintaining trade agreements with EU. The EU placed upon the importance of maintaining a free trade agreement without tariff or quota on traded goods. In the midst of Britain taking an exit from the European Union (EU), some of the top financial companies of the world situation in London have been struggling to preserve the cross border flow of trading (Holmes et al. 2016). Additionally, the passing of the BREXIT bill would allow financial companies situated in Britain to operate in markets without financial barriers (Heisbourg 2016).
Conclusion
The assignment therefore discusses the impact of politics upon trade with examples from BREXIT and American view of protectionism. Global trade has been seen to empower economies across the globe. However, there are limitations of establishing a global trade platform as it has been seen to reduce the autonomy of countries in regulating their self trade. Therefore, in order to revive self dictatorship many counties have started using the policies of protectionism following US. This is mainly done to save the local marketers from the cut throat global competition. However, limited trade options can affect the economic growth of a country exponentially.
References
forbes.com 2018, forbes.com , Available at: https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/#25e7373f1f9d [Accessed on 7 Apr. 2018]
Fouda, R.A.N., 2012. Protectionism & Free Trade: A Country’s Glory or Doom?. International Journal of Trade, Economics and Finance, 3(5), p.351.
Heisbourg, F., 2016. Brexit and European security. Survival, 58(3), pp.13-22.
Holmes, P., Rollo, J. and Winters, L.A., 2016. Negotiating the UK’s post-Brexit trade arrangements. National Institute Economic Review, 238(1), pp.22-30.
Inglehart, R. and Norris, P., 2016. Trump, Brexit, and the rise of populism: Economic have-nots and cultural backlash, pp.106-159.
Jensen, M.D. and Snaith, H., 2016. When politics prevails: the political economy of a Brexit. Journal of European Public Policy, 23(9), pp.1302-1310.
Kee, H.L., Neagu, C. and Nicita, A., 2013. Is protectionism on the rise? Assessing national trade policies during the crisis of 2008. Review of Economics and Statistics, 95(1), pp.342-346.
Marshall, P., 2016. Brexit in its Worldwide Aspect: An Opportunity to be Grasped. The Round Table, 105(5), pp.451-461.
Mendez-Parra, M., te Velde, D.W. and Winters, L.A., 2016. The impact of the UK’s post-Brexit trade policy on development,pp.145-212.
Owen, E., 2017. Exposure to Offshoring and the Politics of Trade Liberalization: Debate and Votes on Free Trade Agreements in the US House of Representatives, 2001–2006. International Studies Quarterly, 61(2), pp.297-311.
Portes, J., 2016. Immigration after brexit. National Institute Economic Review, 238(1), pp.13-21.
statista.com 2018, statista.com , Available at : https://www.statista.com/topics/3126/brexit-and-eu-trade/ [Accessed on 8 Apr. 2018]
theguardian.com 2018, theguardian.com , Available at : https://www.theguardian.com/politics/eu-referendum [Accessed on 6 Apr. 2018]
Trommer, S., 2017. Post-Brexit Trade Policy Autonomy as Pyrrhic Victory: Being a Middle Power in a Contested Trade Regime. Globalizations, 14(6), pp.810-819.
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