Trade patterns can be affected by several factors, including governmental action. In fact, two types of laws control the marketplace: the laws of supply and demand and the laws of governments. The laws of supply and demand should propitiate a maximum advantage in terms of welfare; for free markets should allocate scarce resources so as to maximize gains. The marketplace uses price as the mechanism for achieving its maximization goals. Drawing on Adam Smith’s metaphor, it is possible to argue that if there is an invisible hand conducting the marketplace to maximum welfare, prices are the instrument this invisible hand uses. According to traditional and modern economic theory, therefore, laws of the marketplace maximize welfare under in a free market condition.
Governmental laws, on the other hand, often distort markets and provoke overall losses, even if they occasionally provide some sectors of the economy with support and relief. The gains of some particular sectors are smaller than the total losses of the economy, so governmental laws (also termed externalities) often create prejudicial distortions. In order to appease powerful lobbies, governments are often willing to sacrifice the overall wellbeing of the economy. In fact, the economy does not vote, but farmers, trade unionists and lobbyists do...therein lies the problem.
Among the most common type of factors affecting trade patterns in a rather negative way are tariffs, non-tariff barriers (NTB), quotas, subsidies, Voluntary Restraint Agreements (VRA), environmental and labor policies, dumping, safeguards, etc.
Tariffs were widely used until the Post-War period and are considered to be one of the major causes of the Great Depression of the 1930s. Quotas are quantitative restraints on imports and were widely used in agriculture and to prevent the diffusion of products from rapidly industrializing nations, such as Japan and China. Under Voluntary Restraint Agreements, countries “agree” to limit the amount of exports to other countries.
According to Joan & Hart, nontariff barriers are “...government procurement policies, customs procedures, health and sanitary regulations, national standards, and a broad range of other laws and regulations that discriminate against imports or offer assistance to exports” (Spero & Hart: 88). More recently, environmental and labor policies have been used to discriminate against imports and have played a considerable role in trade patterns.
There are, nevertheless, factors that affect trade patterns in a positive way. The revolution brought on by information technology, the rise of the Internet, and the advances of telecommunications in the 1990s can be considered factors that affected trade patterns in a very positive sense. In fact, such technological advancements lie at the root of trade expansion during the recent wave of Globalization.
At present it is still not possible to accurately predict which of these patterns will prevail. There are, however, strong indicators that point to the prevalence of liberalizing trade patterns. The welfare of mankind certainly welcomes these developments.
Spero, J. E., and Hart J. A., The Politics of International Economic Relations. 6th ed. Belmont, CA: Thomson/Wadsworth, 2003.