trade Flashcards
tariff
tax that you levy at border on any imported goods that are coming to country; paid by who ever is importing it
raises domestic price of imported good and may be applied for the purpose of protecting producers from foreign competition
non-tariff
- quotas: only x number can be imported
ex: france-hollywood tariff; Hawley Smoot Tariff
- Led to great depression because imported goods raised in price so much that other countries retaliated by implementing similar tariffs on US goods - led to huge plummet of world trade, causing great depression
- voluntary export restraints: tell foreign producers here is what you should voluntarily abide by or will just make a quota (same affect as quota)
- regulations: trade restrictionary impacts, EU putting restrictions on import of agricultural products that is GMO’s
ex: US airlines “consume” european airspace - charge carbon tax to all airlines, even non-europeans airlines
comparative advantage
idea that an actor is best off specializing in the good it produces most efficiently and exchanging for those goods it is relatively less adept at producing
specialize in particular areas and produce far more than individually
allows societies to specialize in diff economic activities.- be able to use resources more efficiently but requires access to larger markets (trade)
can be land, labor, capital, human capital (high skilled/non skilled labor)
opportunity cost
value actor forgoes in order to make one product (good, service) rather than another, inescapable
trade allows countries to follow their comparative advantage, so both countries do better through trade than acting on their own
heckscher-ohlin trade theory
theory that a country will export goods that make intensive use of the factors of production in which it is well endowed, a labor rich country will export goods that make intensive use of labor
if two countries produce two goods and use two factors of production to produce these goods, each will export the good that makes the most use of the factors that is most abundant - countries export what they can most efficiently and plentifully produce
cheaper to produce = advantage over other countries
import goods that use scarcer factors - more expensive for country to produce themselves
HO theory application, examples
china: exports goods that make use of their land and unskilled labor of rich production
industrial countries rich in capital and human capital export manufactured goods that make intensive use of these resources
developing countries are rich in land, raw materials, or unskilled labor, so they will export agricultural products, minerals or labor-intensive manufacturers
stolper-samuelson theorem
theory that protection benefits the scarce factor of production, flows from HO approach
factoral:
- Comparative advantage and export those goods
- Hurts owners of scarce factors - relatively more expensive on international market
- Labor intensive goods - more profree trade
- Labor scarce in industrialized countries - less freetrade
- Capital abundant more free trade
- Capital scarce less free trade
Ex: (steel industry) US has scarce unskilled labor so unskilled labor standards are often protectionist because imposing trade barriers against international unskilled labor services would create more jobs and benefits for unskilled workers within country
Ricardo-viner model
model of trade relations that emphasizes the sector in which factors of production are employed rather than the nature of the factor itself
differentiates it from the HO approach, for which the nature of the factor (labor, land, capital) is principle consideration
trade preferences based on sector of economy
easier for workers to go between (factoral)
some factors are tied to their industry - difficult for labor/capital to move from use to use
explanation for trade protection - economic interests
protection is good for domestic producers of protected good, but bad overall for consumers, foreign producers, and potential exporters
winners = domestic producers
losers = consumers
- individual people and domestic firms using protected good as input
- costs for good go up - cost for company g up too
- blunts advantage for foreign producers
national security
- despite universal benefits of free trade may choose to restrict in certain industries/goods rather than others
- anarchy: comparative disadvantage in strategic goods and fear of dependence
- need to make own goods especially when considering potential time of conflict or war (Germany faced no easy source of oil in WWII, allied activity tried to cut Germany off from oil supply)
- customs, border patrol - big part of job is to be inspecting trucks crossing borders have right paperwork; make sure people have to pay duties on something
example of national security and trade
- interwar Nazi Germany economic relations with eastern European countries
- britain, france, belgium, exc
shifted consciously away from those countries to develop economic relations with eastern countries after WWI - couldn’t make same sort of products that other countries were;
smaller economies - create within them a certain level of dependence upon germany that it is able to leverage later on, develop pro-Nazi parties, - trade domestic but also willingness to cooperate with Nazi germany
but knowing this, some countries may limit trade to avoid exactly these effects - shows how that trade may be able to shape your own domestic politics and foreign policy
nationalism
- patriotic protectionism
- 2003 iraq war - informal boycotting, patriotic patriotism, “free fries”
domestic and international institutions
institutional: congress vs. president:
- congress members consider the opinions of the people of their sectors and area, who usually are specifically focused on their jobs, while the president has to focus on larger effects of the whole nation; congress more likely to want protectionism while president will want free trade for better economic results
ex: 2002 steel tariff
- bush series of very large steel tariffs on foreign steel coming into country
- domestic industry producers benefitted- located in swing states that played an important role in winning 2000 election (ohio, Pennsylvania)
in response:
- EU placed retaliatory tariffs on US products (movies)
- CA big electoral state but didn’t care about losing those votes because CA is majority democratic
- solution = more targeted tariffs
- florida oranges and Harley Davidson motorcycles (steel) located in key swing states
- not places with biggest economic impact, places with biggest political impact
reciprocal trade agreements act
- congress passed act of 1934, mandated tariff reductions to be reciprocal, only needed a simply majority instead of 2/3
- ultimately delegated greater authority to president
- president direct negotiator for each trade agreement
- decrease in protectionism in trade, allows countries to use resources more efficiently and increase in economic growth/welfare
- enabled roosevelt to liberalize american trade policy around the globe
fast track authority
- authorizes president to negotiate trade agreements that Congress cannot filibuster, amend
- only an up down vote
- large agenda setting power for president
- lessens house authority over trade agreements
