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| Prevailing exchange rates may themselves be unfair and can be the cause of trade disputes and trade sanctions. For example at the moment China pegs it's currency, the renminbi, to the US dollar, but it is being argued, not least by the United States, that this fixed exchange rate gives China an unfair pricing advantage in the United States (mainly because Chinese labour costs are enormously lower than those in the USA). A fixed exchange rate removes the possibility of trade imbalances (surpluses and deficits of trade) being adjusted via the exchange rate. China is arguing at the moment that volatility of it's exchange rate would add a dangerous element of instability into it's still underdeveloped economy and financial system. | Prevailing exchange rates may themselves be unfair and can be the cause of trade disputes and trade sanctions. For example at the moment China pegs it's currency, the renminbi, to the US dollar, but it is being argued, not least by the United States, that this fixed exchange rate gives China an unfair pricing advantage in the United States (mainly because Chinese labour costs are enormously lower than those in the USA). A fixed exchange rate removes the possibility of trade imbalances (surpluses and deficits of trade) being adjusted via the exchange rate. China is arguing at the moment that volatility of it's exchange rate would add a dangerous element of instability into it's still underdeveloped economy and financial system. | ||
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Revision as of 03:39, 11 June 2004
Trade sanctions are trade penalties imposed by one or more countries on one or more other countries. Typically the sanctions take the form of import tariffs (duties), licensing schemes or other administrative hurdles. They tend to arise in the context of an unresolved trade or policy dispute, such as a disagreement about the fairness of some policy affecting international trade (imports or exports).
For example, one country may conclude that another is unfairly subsidising exports of one or more products, or unfairly protecting some sector from competition (from imported goods or services). The first country may retaliate by imposing import duties, or some other sanction, on goods or services from the second.
Distinction Between Sanctions and Subsidies
Politics of trade sanctions
- Trade Sanctions can be used as a punitive measure in international relations (examples being recent US or multilateral sanctions against Cuba, Iraq, or North Korea).
- Sanctions can be a coercive measure for achiveing particular policy goals (such as United States sanctions against Brazil over patent law in the late 1980s).
Recent Historical Examples of Trade Sanctions
Worldwide there have been many examples of such disputes and associated sanctions. For example, American steel companies requested, and were at times granted, protection from steel imports that they claimed enjoyed an unfair advantage due to the economic policy of the steel exporting country. At times it was asserted that the exporting company was dumping steel overseas (in the USA) at below cost.
Again, as the Asian economies became more and more effective competitors on the international stage, achieved largely via export-led growth, many countries imposed import tariffs and other measures aimed at protecting domestic industries. The intention was not always permanent protection (of the threatened industry) but sometimes an attempt to give the domestic firms time to adjust to a changed competitive context.
The disagreements that occur are not only bi-lateral and can be fundamental to the working of the global economy and e.g. to the alleviation of global poverty. At the moment (September 2003) World Trade Organisation talks in Cancun have just broken down between the advanced nations and the developing world. Unresolved issues include that of whether the advanced nations are unfairly subsidising their agricultural sectors to the detriment of the developing world (that might otherwise sell more agricultural produce into e.g. the USA and Europe).
Monetary policy as a systematic subsidy
Prevailing exchange rates may themselves be unfair and can be the cause of trade disputes and trade sanctions. For example at the moment China pegs it's currency, the renminbi, to the US dollar, but it is being argued, not least by the United States, that this fixed exchange rate gives China an unfair pricing advantage in the United States (mainly because Chinese labour costs are enormously lower than those in the USA). A fixed exchange rate removes the possibility of trade imbalances (surpluses and deficits of trade) being adjusted via the exchange rate. China is arguing at the moment that volatility of it's exchange rate would add a dangerous element of instability into it's still underdeveloped economy and financial system.
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