Tariffs and quotas can be described as various and different trade restrictions. These restrictions are mostly imposed on exports and imports. Different countries have come up with tariffs and quotas to protect their domestic industries and ensure that they earn revenues (Sheffrin 9). A tariff is a tax that is revised every now and then on exports and imports.
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Therefore, tariffs will automatically affect international trade in Big Drive Auto. This is as far as the company’s automobile goods and services are concerned.
As far as international trade is concerned, these tariffs and quotas will affect the price of automobile products. Since Big Drive Auto is located in Canada, it will want to enhance its operations in the global market. Therefore, it will be exposed to different quotas and tariffs (Salvatore 14).
Since a tariff is a tax, it will raise the price of different products that the company will distribute to the market (Steedman 32). In this case, consumers will find the company’s products to be a little bit expensive. This will ultimately affect sales.
Because every country has its own quota system, there will be limits on the amount of goods and services that the company has to export (Sheffrin 16). As a matter of fact, Big Drives automobile products prices will be raised beyond the market equilibrium price.
It should therefore be known that these tariffs and quotas will lead to a decrease in demand for the company’s products (Steedman 17). This will ultimately limit the supply of Big Drive Auto’s automobile products.
These tariffs come in different forms with various intentions depending on the country of origin (Salvatore 18). For example, the tariff may be levied in order to align the price of imported products with that of the locally produced products. This means that such tariffs are levied to level the playing field.
As time goes by, Big Drive Auto might want to distribute its automobile products to various customers in different countries around the world. This means that various trade policies and exchange rates will end up facilitating or reducing the company’s exports.
Exchange rates will ultimately affect the company’s exports in a broad way (Sheffrin 26). The USD is recognized as the world’s official trading currency. Since Big Drive Auto is located in Canada, its exports to other countries will be determined by the exchange rates at that particular time.
For instance, if the company is exporting its goods to other countries and Canada’s local currency becomes strong, its products will end up being expensive. This will affect the final demand and supply.
On the other hand, if the company is importing goods in different countries and its home currency becomes weak; its products will end up being expensive. It should be known that exchange rates keep on fluctuating as time goes by and can never be constant (Salvatore 27).
Different developing countries have come up with various policies and quotas to encourage and enhance foreign investments. World trade organization has been on the forefront to enhance trade between different countries (Salvatore 31).
As a matter of fact, the international trade policy has provided various production subsidies that will end up facilitating Big Drive Auto’s exports. Countries like Hungary have reduced quotas and tariffs on different automobile imports. In this case, the company will be able to increase its exports in such markets.
Big Drive Auto should know that exchange rates bring productivity differences that end up affecting the company’s terms of trade.
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These terms of trade affect the company’s exports to other countries and should be clearly understood as time goes by. For instance, preferential tariffs have reduced import duties on automobile products that Big Drive Auto exports (Salvatore 44). This will increase the company’s sales in new international markets.
Salvatore, Dominick. Introduction to International Economics. New Jersey: Wiley, 2005. Print.
Sheffrin, M, Steven. Economics: Principles in action. New Jersey: Upper Saddle River, 2003. Print.
Steedman, Ian. Fundamental Issues in Trade Theory. London: MacMillan, 1979. Print.