Tariff System: Why the Poor suffer

"The United States was born as a low-tariff nation" BUT "The U.S. has far more trade barriers than most American politicians choose to admit" (authors unknown).

The picture seems to be nice - the effective US tariff rate is 1.6 percent. For expensive consumer goods such as cars rates are historically low and are continuing to reduce. But it's absolutely different story for the light consumer goods. Tariffs on these products are still at levels other industries last saw in the 60s and 70s. So, actually US has two tariff systems - for industrial high-tech goods an average rate is 0.8 percent and for cheap consumer goods it is 10.5.
It doesn't affect only consumers, but also the producers of those cheap goods. Such countries like Bangladesh, Cambodia, Nepal, Mongolia, for which clothes make up 90 percent of all exports to the United States, face average tariff rates of 14.6 percent - almost 10 times the world average (Edward Gresser, 2002).
It does not seem to be fair at all to me, especially when governments always talk about fighting poverty and supporting developing countries.

Below is an interesting proof of how the US government collects money from the poor people, thus "encouraging people not to be poor":

www.ncpa.org/pub/bg135?pg=2

 I've made some research about Russian tariff system. Although, the average tariff is higher than American, the system itself seems to be fairer talking about the poor. For example, the tariff on shoes is 15% no matter if they made of rubber or leather, the tariff on all non-alcoholic beverages is the same, the difference in cotton and silk tariff rate is not as significant as American (referring to http://www.russian-customs-tariff.com/). Of course, in order to compare and draw more accurate conclusions, more tariff rates need to be studied.

I've also found another very interesting article by Edward Gresser "America's Hidden Tax on the Poor" (2002), which explains everything in greater details and gives some possible suggestions and recommendations, which I find to be reasonable. He suggests to treat tariffs as taxes, which is unlikely to happen because this way the government will lose a source of revenue;  to adopt a special relief for poor countries, but this would not help fighting poverty within the country, and tariff elimination through Doha Round of WTO sessions because not only USA has problems with tariff system.

After all above mentioned it is obvious that the country needs to consider a tariff reform along with continuing negotiations on tariff elimination on international level.

Terrorism as a new Trade Barrier

"We're learning to live with terrorism" ( Hugh Johnson, chief investment officer at Johnson Illington Advisors).

No matter how sad it is to admit, but we have to deal with terrorism as a factor, which affects various aspects of our modern life. It greatly influences global trade thus becoming a new kind of trade barrier.

The scheme is simple: terrorism leads to insecurity, which causes government to restrict border security measures, which, in its turn, raises the cost of doing business. Also, when government spends immense amount of money on security they have to cut expenses in other areas. Thus, investment in infrastructure such as roads, transportation system and so on may be cut down, which could lead to decrease in trade between nations.

After recent terrorist acts in Russian subway (last year) and at Domodedovo airport few months back it was announced that the Russian government would spend over $1,6 billion over the next three years to increase transportation security, especially of the Moscow metro system, which is the second busiest in the world. http://homelandsecuritynewswire.com/russia-spending-16-billion-bolster-transportation-security

Of course this is something that has to be done, since the government is in charge of its citizens' security, but that also means the money outflow from the other sectors of the economy. In a long run this can affect competitiveness of Russian business and the volume of trade between domestic companies and their foreign partners.

In my opinion, there is nothing much we can do about it. Countries have to spend money on security measures, because safety of citizens is priority #1. It is the price we have to pay. But some steps can be and need to be taken in order to support and ease cross-border trade between countries and their strategic partners.

The role of government in increasing comparative advantage - Detroit's Big Three example

                               http://www.bnet.com/blog/auto-business/auto-industry-bailout-looks-like-a-long-shot/298

The situation on the US automobile market doesn't seem to be promising - American carmakers' market share is already less than 50%. It's hard to believe that just few decades back the Big Three (General Motors, Ford and Chrysler) had more than 70% of the market.

Can the Big Three really compete with foreign producers? I don't think so...

The main reason why is the fact that the US companies are burdened with huge amounts of health-care costs and pension obligations of thousands of retirees.

By 2007 GM had more than $60 billion of obligations, which is around $1,500 on a per-vehicle basis. That year UAW agreed to a partial reduction of social obligations for GM (from $61 billion to $46 billion) and Ford (approximately $5 billion reduction). But even with those reductions the US carmakers can hardly compete with foreign auto companies, which are based in countries that have national health-care systems.
It all proves that health care is still one of the biggest issues in the US, the solution has to be found if the government wants to keep the business running and wants to increase competiveness of the US companies.

Comparative advantage in a particular industry can be created through the mobilization of resources: labor, technology, capital; and government can be actively involved in creating such industrial policies, which could promote and boost dynamic comparative advantage (Carbaugh R. 2009).

Thus, it is obvious that industrial strategy in the US automobile industry needs to be reconsidered.

How open you are to openness?

No doubt, NO country in the modern world can live in autarky.

We have created such a model of cross-country and cross-cultural interdependence that sometimes it feels like the borders between countries are vanishing: we watch foreign movies and buy foreign singers' cds, we go to eat out to Chinese/ Indian/ Russian restaurants, we can buy French wine, German car or Swiss watch without travelling to the country of their origin. Seems like a wonderful possibility to use the advantages of so-called global economy, right?

As written in one of the weblogs, the $24,744 GDP per person of the 12 most open economies is almost eight times the comparable figure for the 12 least open economies. The per capita GDP of the 12 most open economies grew at an annual rate of 2.7% during 1980-1999, compared to 0.4% a year for the 12 least open economies. All 12 of the open economies had positive growth rates and all but one grew at an annual rate of 1.4& or more. In contrast, six of the least open economies experienced reduction in per capita GDP and only four of the twelve achieved a growth rate in excess of 1%.  http://thefilter.blogs.com/thefilter/economics/page/48/

Looks like the solution is easy - open up your economy and get wealthy...
BUT: is it really that easy? Would it be the right thing to do for an economically weak developing country, which doesn't really produce anything competitive, to open up its market for all those cheap imported products and, thus, to "kill" let's say its "just-born" industries?..

The real-life example: after the last crisis the automobile industry in Russia was facing hard times. The government took a serious step to support the producers - it established a program of car utilization - owners get money for their old cars and get more if they buy Russian cars. This was combined with huge tariffs on imported cars - for example, exactly the same car in US is 2 times cheaper. The measures helped the government save the industry - sales went 30% up.
Continuing talking about Russia... What would absolutely open economy bring the country, which doesn't really produce anything (we even import shampoos and tooth paste... no need to mention computers, phones and other electronics) but has tons of natural resources??? The future doesn't seem to be very perspective and positive...

I am sure that the 1st priority for any country is to protect its own interests. We've seen the examples when developed countries promoted free trade and then went back to protectionizm for some period of time. http://nicholsoncartoons.com.au/mar-bush-pisses-on-free-trade-550.html
So what are we expecting from developing countries?

Actually, I believe in free liberalized and fair trade. If used the right way it might help developing countries take a step forward. But the process of liberalization needs to be gradual and step-by-step.

To sum it all up, I believe that it is very important for every single country to be open for global trade - there is no country, which could survive in isolation. If a country doesn't participate in import/export relationships with other countries, it is not using the advantages of globalization.
At the same time, it is necessary to regulate international trade in the right way, so importers and exporters are protected. So, I'm convinced that the best idea is to combine liberalization and protectionist strategies depending on context variables, and to adjust trade policy accordingly.