Essay on impact of liberalisation policies on industry

Post-war trade liberalization has led to widespread benefits, including higher income levels, lower prices, and greater consumer choice. Openness to trade and investment has substantially contributed to U. The highest tariffs are concentrated on agriculture, textiles, and footwear. The Trump administration has enacted tariffs on imported solar panels, washing machines, steel, and aluminum, plans to impose tariffs on Chinese imports, and is investigating further tariffs on Chinese imports and automobile imports.

The effects of each tariff will be lower GDP, wages, and employment in the long run.

The tariffs will also make the U. Rather than erect barriers to trade that will have negative economic consequences, policymakers should promote free trade and the economic benefits it brings. Trade barriers, such as tariffs, have been demonstrated to cause more economic harm than benefit; they raise prices and reduce availability of goods and services, thus resulting, on net, in lower income, reduced employment, and lower economic output.


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This widespread reduction in trade barriers has contributed to economic prosperity in many ways, including large increases in trade activity and accompanying gains in economic output and income. The overall effective rate of these tariffs appears low, but varies widely across categories of goods. Some of the highest duties apply to clothing, apparel, and footwear; some of the lowest apply to aircrafts, spacecrafts, and live animals. Tariffs are a type of excise tax that is levied on goods produced abroad at the time of import. They are intended to increase consumption of goods manufactured at home by increasing the price of foreign-produced goods.

Generally, tariffs result in consumers paying more for goods than they would have otherwise in order to prop up industries at home.

Changes in Industrial Policies and their effect on Industrial Growth:

Though tariffs may afford some short-term protection for domestic industries that produce the goods subject to tariffs by shielding competition, they do so at the expense of others in the economy, including consumers and other industries. As consumers spend more on goods on which the duty is imposed, they have less to spend on other goods—so, one industry is propped up to the disadvantage of all others. This results in a less efficient allocation of resources, which can then result in slower economic growth.

Tariffs also tend to be regressive in nature, burdening lower-income consumers the most. Trade makes a nation wealthy, and conversely, trade restrictions make a nation poorer. Trade enables nations to specialize in activities in which they have a comparative advantage; in other words, what they can produce at a relatively lower opportunity cost, and trade for what they would otherwise have to produce at a higher opportunity cost.

Key Findings

Through this process, productivity increases as resources flow to the economic activities in which a country has a comparative advantage. On net, though, trade results in higher levels of productivity, income, and output throughout the economy.

5 Economic Effects Of Country Liberalization

Trade clearly results in positive economic outcomes, allowing people in different countries to specialize in what they do best, and then exchange physical goods, services, and financial assets across borders. But there are often misperceptions about the measurements that economists and policymakers use to track flows of trade. The balance-of-payments system consists of the current account, which measures the flow of goods and services, and the capital account, which records the flow of finances. Now suppose that the business sells the goods to France; after shipping and other costs, the business makes a 20 percent profit selling to French customers.

But unfortunately, the entire ship sinks before it reaches France, leaving the business at a total loss. We can agree that no one has been made better off here, even though the accounting identity shows a trade surplus. The capital account is also involved in these transactions, recording the exchange of financial assets, like currency.

Globalization, Liberalisation and Privatisation in India (1916 Words)

When the U. Conversely, when the U. This indicates that foreigners have U. In other words, when we spend dollars on foreign goods, those dollars do not disappear; they will return to the U. The balance-of-payments system is simply an accounting identity; the current and capital accounts track flows of goods, services, and financial assets between people, and they move in the opposite direction of one another.

A current account trade deficit is simply another way of stating that we have a capital account surplus; neither has a causal implication for the health of the economy. Whether a business sells to or buys from domestic or foreign consumers, they do so because the trade is profitable. When countries erect barriers to trade, such as tariffs, they raise prices and divert resources away from relatively efficient economic activities towards less efficient economic activities.

Tariffs in particular can have this effect through a few channels.

Economic liberalization - Wikipedia

One possibility is that a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of intermediate goods such as parts and materials, which then raises the price of goods that use those inputs and reduces private sector output. Similarly, higher consumer prices due to tariffs would reduce the after-tax value of both labor and capital income.

Because these higher prices would reduce the return to labor and capital, they would incentivize Americans to work and invest less, leading to lower output. Alternatively, the U. This would also result in lower U. Academic studies have quantified the costs of tariffs and shown that tariffs often fail to achieve their objectives.

Bush administration found that the first year the tariffs were in effect, more American workers lost their jobs due to higher steel prices , than the total number employed by the steel industry itself at the time , Bonuses, savings and free of charge functions.

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