AS micro essays (8)

Food is necessary to life and to maintain the national security. Efforts are often made to stabilize price and incomes of farmers. Most of the governments intervened to the agricultural market to ensure that an adequate amount of food is supplied at the acceptable price. The impact can be positive or negative to the economy depends on how the consumers and producers reflect to the policies. However, to the end, the circumstance is that the intervention of the government spill over the international trade in food products.

Intervening into the agricultural market by setting a barrier always is carefully considerable by the government. The price in free market has to be set by the demand and supply forces. We always have question that whether we are using our resources in the most efficiency way. The low price in the free market needs to be made by the increase in the productivity or the achieving economy of scales, not by supporting from government. So therefore intervening into the agricultural market often contents the fear that market fails in achieving productive and allocative efficiency. But in the other hand, appropriate policy at suitable time will bring benefit to the economy.

The most common type of trade barrier is the tariff. Tariffs discourage imports by rising

the price of the imported good, thus discouraging consumer purchases. Domestic

producers benefit from reduced competition and higher prices, and producers in exporting

countries are harmed by the reduction in the level of exports.

Unlike tariff, which allows goods flow into the market without limit, quota fixes the quantity of import products that can go legally to the economy. The function of the quota is, by reducing the available of import goods in the market, the price of import product will rise and therefore it brings to domestic products more competitiveness.

Quotas can have unintended side effects, as illustrated by the U.S. sugar program. Selected countries are each allocated a fixed quantity of sugar which they can legally export to the U.S. These quotas protect U.S. producer prices, which are higher than world prices. Over time, high U.S. sugar prices have encouraged increases in domestic sugar production. Corn growers have become major supporters of the U.S. sugar program because the higher U.S. sugar price resulting from the quota led food manufacturers to substitute high fructose corn syrup (HFCS) for sugar. Therefore, with the sugar program, production of HFCS has been highly profitable; without the sugar program, sugar prices would have been lower and HFCS production might not have been profitable.

Barrier entries also bring to the war in economy. In most cases, losses equally taken by both countries. . For example, the EU has banned the use of growth hormones in cattle production in member countries and has banned meat imports from animals which have been given growth hormones. This essentially eliminates all meat imports from the U.S., where use of growth hormones has been judged safe. The U.S. has challenged the ban and both sides claim to have a scientific basis for their position. Similarly, the U.S. has banned imports of all fruits and vegetables treated with ethylene dibromide, but other countries disagree with this decision.

In conclusion, international trading should be liberated. Each country has its comparative advantage, and the trading will have the circumstance that both economies will gain benefit. By eliminating the barrier in the agricultural market, it will bring benefit to the whole economy even though the cost is some domestic sector might get worse off. And more important, it will avoid the trading war which just will damage the economy