Trade Tariffs and Subsidies

Governments, through their institutions, have the responsibility of promoting domestic and international trade for the benefit of their economies. Even though national governments have significantly employed the strategy of reducing most of their trade barriers and subsidies to foster economic and social benefits of international trade, they end up intervening in the goods and services markets hence distorting the overall international trade. Further, not all trade barriers and subsidies applied serve the purpose of welfare- reducing effectively while on the other hand, they can help in alleviating the social and private costs gap. The result of such distortionary policies is harmful effects to the global trade arena and more to the poor people.

Government, trade unions and other independent institutions have embarked on efforts to alleviate these effects and eliminate such policies. It is evident that countries with economies that have minimal intervention in their markets attract more investors and this translates to more investment funds, aggregate savings and capital stocks. Moreover, there is a substantial inflow of intellectual capital in the form of ideas, technologies, and information. This trade liberalization translates to the economy being more innovative and increasing its overall productivity and capital accumulation. However, to maintain this status of the economy, the government should; deploy institutions that effectively and efficiently allocate the property rights of the country and protect them; promote the free functioning of the domestic product and factor markets; and finally, foster political and macroeconomic stability. It is noteworthy that trade openness, in addition to the above factors, is necessary to foster knowledge capital and economic growth of an economy.