 Hello and welcome to this session in which we will discuss trade controls and specifically international trade control. What is trade? Trade is when countries exchange goods and services amongst each other. What's called international trade? What we're going to be discussing in this session are controls, restriction on that trade. So what is that? Well those are policies implemented by government to do what? To regulate, restrict or otherwise control the flow of goods and services across countries. There could be one reason or many reasons for this. I can quote two reasons. One is protect domestic producers. What does that mean? It means you might have a producer or several producers in that country for example in the US and those producers they don't want European companies for example car producers. They don't want European companies to export their Mercedes and BMWs and the Japanese companies. So what you do is you don't allow other countries to ship cars to the US. Why? So you can product Ford and motor company's market share so they can sell more cars in the US because there's no alternative for US consumers. Another reason why you might place those controls are for national security reasons. A good example about national security reason, a recent example is this report that says NVIDIA, the company NVIDIA, the company that produces artificial intelligence chips that goes into the computers for artificial intelligence purposes. It dips, it means the stock price went down on report that the US government is considering restricting, exporting those chips to China. Now this was not the final loser or some negotiation back and forth but the point is this is for national security reasons the US told NVIDIA don't sell placing restriction on export. Usually restriction is on import but notice here it's for export. So you could have those restrictions for export as well but that's not very common. There are several types or tools of trade controls could be you could impose a tariff, you could impose quotas or you could impose embargoes. And what I'm going to do in this session is explain each what does each one means and how does it affect trade starting with tariffs. Before we proceed any further I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions as well as exercises. Go ahead start your free trial today. What is tariffs? A tariff is a tax. Basically you're imposing a tax. Now why is it called a tariff? Well it's a tax imposed specifically on imported goods and services. What is imported goods and services? Goods and services for example in the US we buy from Europe or we buy from Asia or we buy from China. So what happened is the government would said okay if you're bringing those goods that's fine you can but we're gonna impose a tariff. What's the main purpose of a tariff? To make imported good more expensive and therefore less competitive for domestic product than domestic product. So what you want to do as I mentioned earlier is you want to product your domestic your domestic industries from foreign competition. This is the purpose of it. So what you do is you make the product of other countries more expensive. How do you make it more expensive? You impose a tax we call tariff. When there's a tax the company or the person that's bringing those product importing those product will have to sell them at a higher price because they want to make profit themselves then it becomes expensive for the producer to it becomes for the importers to sell because it's more expensive than domestic production. Now tariffs will help medicaid dumping. We'll talk about dumping later but a good example will be suppose a country wants to protect its domestic car industry for example the US they want to protect you know Ford and GM which is a bad idea but let's assume that's the case. But could could impose a tariff on foreign made cars for example they can tell Europeans well you can bring your cars but we're gonna impose 20% or 30% or whatever percent tariffs on the cars. Now bear in mind guess what's gonna happen Europe is gonna turn around and impose a tariff on the US so tariffs don't really work you know they're not good for international trade. But let's assume if the domestic price of a car is 20,000 and the government imposes 20% tariff on imported cars then an imported car that originally costs 20 but costs now 24 so it's making imported cars more expensive so the BMW will become more expensive than a GM car. This will make domestic cars imported cars less attractive to consumers why because they are more expensive giving a market advantage to domestic car manufacturers. Now for one thing it's not fair that's one two they can impose a counter tariffs which is not good three it's not good for the consumer you want to give consumers more options because when you impose tariffs what you're telling your domestic consumers I'm giving you kind of a monopoly or quasi monopoly option because remember what is some features of monopolistic or monopoly is you have few suppliers well you are restricting the suppliers also it's not good for competition when you have competition the domestic producers will work harder they will have more features they will improve their product because because there's a threat to them and that's the beauty of capitalism. Again the cons of this is you'll have counter tariff practices and you'll have less international trade so that's one way to control international trade another way is something we called quotas or basically simple simply put it's a limit you place a limit a quota is the limit on the amount of certain types of goods that can be imported or exported here you are not placing attacks you're telling them look you can bring the product but you are limited to 200 000 units or whatever units you want to do or you can do this for exported like as we saw in Nvidia for example you can export 100 000 chips to the Chinese market that are related to artificial intelligence okay so once the quota is reached no more of that good can be imported or exported until the next period when the quota resets so this is what it is you don't want to impose attacks the purpose is the same protect domestic producers why because you are limiting foreign competition similar to tariff but to do but do so by directly limiting the quantity rather than increasing the price the effect is the same less competition less options for the consumer more power to the domestic producers and it's going to basically trigger a trade war an example will be supposed a country produces a lot of sugar and wants to protect its sugar farmers okay the government could impose a quota on imported sugars saying that only 100 000 tons of sugar can be imported per year why because they want their domestic producers to be able to sell the sugars once that limit is reached no more sugar can be imported regardless of the demand okay this ensures that the domestic sugar producers can sell their product without much competition from foreign sugar once again the people who are working in the sugar industry the owners of the sugar industries of course they're gonna be very happy with this but it's gonna be it's gonna be on the expense of other others which is the consumers also when when other countries sees that you are imposing imposing quotas or limits guess what they would react and they will do the same thing embargoes is the most extreme terraform of trade control basically this is that's it completely banning the import or export of certain goods that's it we're not trading with you anymore okay usually this happens for political reasons the best example is kuba the the us embargo on kuba embargoes might be placed on certain goods sometimes we just say certain goods or on all goods to and from particular country that's it like kuba is the most restrictive and the longest embargo in history there are typically imposed in response to political or humanitarian crisis as a way to pressure the government there and achieve political gains again the most classic example is the us embargo on kuba it's for half a century well it went through a varying level of restrictiveness okay is one of the most well-known examples of embargoes it includes commercial financial penalties that have been applied by the us against kuba it was imposed originally to pressure kuba to move to to move toward democracy away from communism during the cold war and a greater respect for human rights whether it's working or not that's a different story but that's where an embargo is it's the most extreme then what we need to learn about is something a term called dumping this is a term used in international trade it's a practice where a country or a firm export a product at a price lower than foreign important market than the price in the exporters domestic product so what they do is they export the product to you so for example a japanese company will export the product to the us and they would sell it less than what the us producers are producing the product guess what's gonna happen everybody's gonna buy the japanese product and this is done to increase the market share in the foreign market or to upload surplus goods now why would the japanese company do that well two reasons one is they want to gain a foothold a market share therefore would sell it at the lower than your domestic producer so everyone will buy it or we have too much of it we have a surplus and guess what when you have too much supply you have to reduce your price so you reduce your price you sell it so dumping can be seen as a form of price discrimination and it's considered unfair practice because it disrupts market and lead to unfair competition now dumping is different dumping is basically you're doing it on purpose to hurt others or you are selling it below your cost you can't do that okay in many cases it may lead to exporters gaining a monopoly or a minor monopoly in the foreign market and you don't want companies with monopolies especially at the expense of domestic producers i'm not saying to protect domestic producers to have protectionism but also you don't want to allow dumping so it's it's no dumping let's have a fair playing field that's what we are saying here an example of this for example of a chinese manufacturer selling steel in the u.s at a price slower that when u.s steel manufacturers can afford to because our cost of producing it is higher the u.s government might impose anti-dumping duties again how would you fight this you know it's called anti-dumping duties just tariffs a special kind of tariff on imported chinese steel what would that do that would raise the price of the chinese product in the u.s market making it less attractive or more competitive with u.s producers therefore reducing the impact of dumping so if the chinese companies want to dump their product well for the u.s for the u.s consumer it's going to be a little bit more expensive it's not as what they wanted to sell it for so countries could use tariffs quotas and embargoes to mitigate the practices of dumping if they want to embargoes are too extreme they may use tariffs usually tariffs they can use quotas as well but usually tariffs will do tariffs will do or negotiate let them know that dumping is not allowed it's illegal unfair and take some measures what should you do now you should go to farhat lectures work mcq's multiple choice questions to learn more about this topic invest in your cpa my job is to explain the material your job is to learn it so you can pass the exam and move on with your career good luck study hard and of course stay safe