Chen, Hongyu Due Date: 19 March 2010 Extract Date: 16 March 2009 Section 4 Word Count: 749 Canada

aims for 'tariff-free zone' in manufacturing pqQ According to the Agence France-Presse, Canada hopes to eliminate some fifteen hundred tariffs on manufacturing inputs, machinery and equipment by 2015. By doing so, Canada hopes to encourage domestic industries to obtain manufacturing tools much more easily, allowing many industries to become more competitive. This article is related to international trade barriers its role in protectionism1. The goal of protectionism is to protect domestic producers by limiting the amount of imported goods. This can be accomplished using a variety of methods. By far, the most common is the protective tariff2, which hopes to reduce demand on foreign goods by directly raising their price. When this is accomplished, domestic producers can supply greater quantities of the good and effectively compete in the global market. Another form of protectionism is the import quota3. In this case, although foreign suppliers are able to sell their product at market price, domestic manufacturers are able to compete because they are responsible for the majority of the goods being sold. Finally, government subsidies4 can be used for protectionism. By increasing financial capital for businesses in a particular industry, either by using cash transfers or low interest loans, it can make that industry artificially more competitive in the global market.

1 2

Governmental regulation for trade A tax levied on imported goods 3 A numerical limit on the amount of a foreign good that can be imported within a given time period 4 Financial assistance paid to a particular industry by the government

and machinery (PWorld+Tariff to PWorld. However. however. because manufacturing tools is a means of production5. SWorld+Tariff will be eliminated and replaced by SWorld. the domestic quantity supplied has decreased drastically (from QS+Tariff to Qs). when the tariffs are removed. Currently. it is necessary to look beyond the market for manufacturing tools. tariffs are being decreased to promote growth for many domestic industries. and price are at Qs+Tariff. This can be shown graphically in the Canadian market for manufacturing tools (Diagram 1) by SWorld+Tariff. After all. Graphically. instead of increasing tariffs. where price is lower and the level of imports (the gap between Point C and Point D) is significantly higher than before (the gap between Point A and B). quantity demanded. technology. thousands of other industries will benefit from the decrease in price of industrial equipment. To understand how this is possible. Canada has enough tariffs on manufacturing tools to indirectly impede the trade of over five billion Canadian dollars in goods by raising price. they can more easily compete in the global market. Canada will be flooded with industrial equipment. Because Canadian industries will be able to purchase equipment at a much cheaper price. machinery. Diagram 1). where quantity supplied. and Pworld+Tariff. and other manufacturing tools. Qd+Tariff. However. it appears that domestic industries have been forced out of business. in 2015. On the surface.In this situation. Since there exist many more Canadian industries that rely on manufacturing tools than 5 Items used to produce goods or services . respectively.

foreign businesses. reduction of latter to benefit the former is an viable long-term idea to promote domestic growth. . in the long run. since they will be forced to sell goods at a lower price. Foreign businesses will benefit from the massive elimination of tariffs because they are free to flood the Canadian market with their goods. Yet. this is offset by the increase in productivity of domestic businesses which can now buy manufacturing tools at a cheaper price and thus. eliminating tariffs on means of production is an excellent way to promote domestic growth. domestic businesses. the government because it will lose revenue from tariffs and citizens because many will find themselves unemployed from the failure of domestic businesses which produce manufacturing goods. However. and the government itself. both will benefit. both the government and Canadian citizens will be hurt. The government will be able to collect taxes on many thriving domestic industries which will prosper because of the reduction of price on industrial that supply manufacturing tools. Finally. produce more efficiently. As established already. The primary stakeholders in this governmental action are Canadian citizens. domestic businesses which are manufacturing tools will be hurt. Canadians will enjoy lower prices on various manufactured goods because businesses which rely heavily on manufacturing tools can afford to produce much more. over twelve thousand jobs are expected to be created for Canada’s manufacturing sector. In the short run. Considering Canadian industries as a whole.

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