competitive devaluation
Development of International Trade Theories
• Mercantilism • Absolute advantage • Comparative advantage • Factor endowments • International product life cycle • New trade and national competitive
3. designed to help governments resist lobbying efforts by domestic interest groups seeking special favours
Study Questions
Study Questions
• 1. Why do nations engage in international trade?
International Trade
• Definition: the purchase, sale or exchange of goods and services across national borders
• Increases the number of goods that domestic consumers can choose from
advantage
Development of International Trade Theories
• Government intervention: tariff • Adam Smith: absolute advantage
“the invisible hand” • David Ricardo: comparative advantage
Chapter 1 International Trade
In this chapter, we’ll cover:
• Reasons and Effects of International Trade • Development of International Trade
Theories • Benefits of Free Trade • Trade Barriers • Arguments for Trade Protection • GATT and WTO
GATT and WTO
2. require members to limit trade only through tariffs and to provide market access not less favourable than that specified in their schedules
GATT and WTO
• WTO: World Trade Organization • Six key objectives:
(1) to set and enforce rules for international trade (2) to provide a forum for negotiating and monitoring further trade liberalization (3) to resolve trade disputes
GATT and WTO
• (4) to increase the transparency of decisionmaking processes, (5) to cooperate with other major international economic institutions involved in global economic management, (6) to help developing countries benefit fully from the global trading system
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.
• 4. What happened to world trade in the 1930s? Why did it happen?
• 5. What are the arguments in favor of trade protection? How valid are they?
• 6. What are the functions of the WTO as an organization for liberalizing trade?
• Decreases the cost of those goods through increased competition
• Allows domestic industries to ship their prcts
• Comparative advantage e.g.chartered accountant or painter? • Opportunity cost • Note: absolute advantage
• 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
Arguments for Trade Protection
• Diversification for Stability Argument • Infant-industry argument • Protection against dumping argument • Cheap foreign labor argument • The retaliation argument
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
GATT and WTO
• Three purposes of WTO rules
• 1.Protect the interests of small and weak countries against discriminatory trade practices of large and powerful countries
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
• 2. How does a country’s international trade affect its exchange rate?
• 3. What are some of the important theories of international trade?
Study Questions
Reasons and Effects
• An economy’s annual GDP: C+I+G+(X-M)
• Trade surplus and trade deficit • Exports and imports • Exchange rate: appreciation and depreciation
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