Trade Restrictions and Economic Development: A Study of the Effectiveness of Trade Barriers

Abstract

Countries pass through different stages of structural transformation. In the early stage of development, economic activity is dominated by agriculture and mining. As a country develops, firms adopt new technology and move toward industrialization and faster economic growth. Eventually, the society matures when political and economic institutions are well established, and the society moves towards mass consumption. In a matured economy, generally government interventions are replaced by privatizations in production and trade. Accordingly, international trade barriers are reduced as a country moves towards later stages of development. Recently the US government has moved against the trend by imposing tariffs on China’s imports. There is a literature on positive effects of trade liberalization and economic growth. Not unsurprisingly, the Chinese government retaliated by introducing tariffs on US produced goods. For the time being, the result of this trade war on US and China’s trade balance is unclear. However, this development has introduced excessive volatility and uncertainty in global financial markets.

Keywords

• free trade
• trade restriction
• tariffs
• economic development
• economic growth
• convergence
• trade openness