Trade Flashcards
(25 cards)
benefits of trade
- lower domestic prices
- Greater choice
- resources trade
- economies of scale (more efficient production domestically/ internationally)
- Increased competition (between international and domestic producers)
- more efficient allocation of resources (specialization of countries makes more efficient use of resources)
- source of foreign currency
WTO
int organization setting rules for global trading and resolves disputes. requires ‘most favourable nation status’ to all members
free trade
when there is no barriers between countries
imports
represent a debt on the BoP buying goods or services from abroad possible because: better quality, incapable to domestically manufacture, lower costs of production, better service
exports
sale of goods and services to abroad credit on BoP level dependant on competitiveness of domestic producers compared to abroad
types of trade
- goods
- services
- investment
- income transfers
- capital transfers
- equity transfers (shares)
- reserve assets
semi-manufactured goods
goods gone through manufacturing process but bought to contribute to other manufacturing processes
reserve assets
can be used to correct balance of payments
elements of competiveness
domestic inflation domestic productivity levels of investment unit costs
types of protectionism
Tariffs, quota, subsidies, embargo
Tariff
ad valorem tax on imported goods, raising prices for consumers and shifting demand to domestic PED/PES can affect effectiveness, and the size the amount of revenue common anti-dumping measure
subsidy
an amount of money paid by the government to a firm, per unit of output, to increase competitiveness
quota
physical limit on the numbers of goods that can be imported into a country
reasons for protectionism
- increased revenue to governments
- correct balance of payments
- protect product standards
- prevent dumping
- strategic reasons
- avoid over-speculation
- infant(sunrise) industries
- protection against low cost labour
- protection for domestic employment
analysis of protecting domestic employment
protection could be prolonging the process of structural unemployment because of a declining industry let the economy move to another expanding area negative externalities from a rapidly declining one could be large enough to warrant protection
analysis of protecting from low-cost labour eg US clothes industry against Asia
domestic consumers would be paying more than needed and an inefficient production level
analysis of protecting an infant industry
could raise competitiveness access to large capital markets in developed countries allows infant industries to open at most efficient stance (eg. petrochemical production in Saudi Arabia having large factories, therefore economies of scale)
analysis of preventing over-specialization eg Swiss watches hurt from mass-production
protectionism doesnt greatly affect this
analysis for strategic reasons (egs steel for defence in times of war)
often used as an excuse for protectionism, normally supply is still available
analysis of preventing dumping
difficult to prove dumping by protecting an industry, supporting dumping retaliation is possible
analysis of protecting production standards
sound if concerns valid eg US hormone beef not proved to have negative consequences, so ban unnecessary, US retaliated against EU
analysis of raising government income
not an argument for, but a means to
comparative advantage
producing more units than other countries using the same resources
arguments against protectionism
- may raise PRICES to domestic consumers and producers
- less CHOICE for consumers
- INEFFICIENT domestic firms and reduced INNOVATION
- distorts COMPARATIVE ADVANTAGE SPECIALIZATION reduced for these reasons,
- hinder ECONOMIC GROWTH
