• Mercantilism • Absolute advantage • Comparative advantage • Factor endowments • International product life cycle • New trade and national competitive
GATT and WTO
• GATT: General Agreement on Tariffs 1947
• Three principles: 1. equal, non-discriminatory trade treatment for all member nations; 2. the reduction of tariffs by multilateral negotiation; 3.the elimination of import quotas.
• Comparative advantage e.g.chartered accountant or painter? • Opportunity cost • Note: absolute advantage

Reasons and Effects
• An economy’s annual GDP: C+I+G+(X-M)
theory
Benefits of Free Trade
• Promotes competition and deters monopoly • Increased variety of goods and services
available to consumers
• Free trade has led to prosperity and growth and that protectionism has had the opposite effects
• Voluntary export restraint (VER) • Standards • Subsidy
Arguments for Trade Protection
• National security argument：selfsufficiency
• Increased domestic employment argument: Job creation from imports Fallacy of composition Possibility of retaliation Long-run feedbacks
Trade Barriers
• Tariffs: specific Tariffs and Ad Valorem Tariffs revenue tariff protective tariff
• non-tariff barrier (NTB):licenses and quotas Quota: import and export quota
Arguments for Trade Protection
• Diversification for Stability Argument • Infant-industry argument • Protection against dumping argument • Cheap foreign labor argument • The retaliation argument
Chapter 1 International Trade
Reasons and Effects
• Why do nations trade?
• The distribution of natural, human, and capital resources among nations is uneven; nations differ in their endowments of economic resources.
advantage
Development of International Trade Theories
• Government intervention: tariff • Adam Smith: absolute advantage
“the invisible hand” • David Ricardo: comparative advantage
Development of International Trade Theories
• H-O model: factors of production • Raymond Vernon: International product life
cycle theory • The late 1970s and early 1980s: New trade
• Trade surplus and trade deficit • Exports and imports • Exchange rate: appreciation and depreciation
competitive devaluation
Development of International Trade Theories
• Efficient production of various goods requires different technologies or combinations of resources.
• Products are differentiated as to quality and other non-price attributes. Some people may prefer certain imported goods to similar goods made domestically.
Reasons and Effects
• Japan: labor-intensive goods • Australia: land-intensive goods • Industrially advanced economies: capital-
intensive goods
Reasons and Effects