Question

Provide an example of the relationship between ‘tariffs’ and ‘international trade agreements.’

Answer 1

International trade agreements are when two or more countries agree on the terms of trade between them. They determine the tariffs and duties that countries impose on exports and imports. All trade agreements affect international trade. There are three types of trade agreements; unilateral, bilateral and multilateral.

By removing tariff, countries can lower prices of imports. Consumers will benefit but domestic producer will have to face competition from outside firms and may suffer due to lack of economies of scale.

Major countries of the word set up GATT in reaction to the wave of protectionism in order to reduce tariff barriers on manufactured goods in the industrialized countries. Since it began in 1947, average tariff fell by 40% which led to further expansion of world trade.