International/regional trade Flashcards
Trade
Trade = the exchange of one commodity for another
Tariff
A tax imposed on imports of a product, revenue going to government.
Non-tariff barriers
- Quotas = Limits on quantity/value of imports
- Subsidies = payments to an industry to help compete on international market
- Currency controls = limit availability of foreign currency for the purchase of foreign goods
- Voluntary export restraints = country agrees to limit exports to a certain country as it threatens to place barriers against the exported goods
eg. 1980s, Japan exported lots of cars - US pressured them to voluntarily reduce exports to US
Free trade
Free trade = trade without barriers, free flow of goods between countries
Consumers can buy any product supplied internationally eg. UK used ot have strong car market but now more international cars dominate
Protectionism
Protecionism = Government policy that limits imports from other countries - extra cost for consumers
Mercantilism theory
The aim of a country is to increase its trade surplus (exports up, imports down)
Believes in fixed amount of gold in the world so one country’s gain is another’s loss
Liberal trade theory
Adam Smith
Liberal trade theory = argues all sides can gain from free trade
Adam Smith theory: of ‘absolute advantage’, two countries could benefit if they specialised in the goods produced better than the rivals they’re trading with.
Comparative advantage
If a country is better at producing product A than product B, it is better to specialise in product A.
Ricardo’s theory of comparative advantage
A country is better off if it specialises in production of goods/services it is efficient in, compared to competitors.
eg. if a country is relatively better at producing wine than wool, it should export wine to get money to import wool.
Economic Nationalist arguments:
Infant industry protection
Countries likely to become competitive on the world stage eg, agricultural, should be given protection as they import industrial products so find it hard to industrialise, but will likely have a comparative advantage in inustrial production in the future.
CRITICISM - unlikely domestic producers will willingly renounce the protection, difficult to know when to retract
Economic Nationalist arguments: National security argument
Dependence on external markets for items needed for defence of the nation or food security an threaten a nation’s security.
Countries should counteract support for free trade with policies protecting national security
CRITICS - Ha-Joon Chang (heterodox economist) - Says every economy was developed by using protectionism, not free trade
Critical/radical critique of free trade
- Unequal exchange perspective - Historical power relations cause unequal gains/disadvantages for poorer countries.
- Environmental activists -
Current trading practices are unsustainable, campaign for return to local trade. - Feminism
Trade is not gender neutral, trade theory has ignored social costs.
Import Substitution Industrialisation (ISI)
Substituting externally produced goods/services with locally produced ones, with government support.
CRITICISMS - Supports inefficient industries at expense of efficient ones.
- Product quality problems
- Political isolation and limited foreign investment access.
Export Processing Zones (EPZ)
Free trade zones with different economic regulations to the rest of the country:
- Long-term tax concessions
- Duty free import of raw material
- Subsidies on utilites/rent
CRITICISM: poor labour and environmental standards
Regional Trade Agreement =
Treaty between two+ governments that define rules of trade for all signatories eg. EU
ECONOMIC motivations for Regional trade agreements
- Promotion of trade liberalisation
- Investment liberalisation, attracting foreign direct investment
- Managing economic conflict
POLITICAL motivations of Regional trade aggreements
- Improvement of inter-state relations
- Enhancement of security in the region
- Ease of negotiation and implementation
CRITICISMS on Regional trade agreements
- Increase barriers to products from other countries
- Divert natural flow of trade
- Concerns about their democratic nature
- Detrimental effects on social policies, environment and labour standards
TRIPs
= Trade-Related Intellectual Property rights
- Patents and copyrights
- Advanced countries often demand stronger monopoly restrictions for their firms in developing countries, meaning their gain is often the loss of the developing country.
NAFTA - USMCA
Free trade zone in US, Can, Mex enforced in National legislation
Est. in 1994
2018:
- Became USMCA (US-Mexico-Canada Agreement).
- Canada must open dairy market to US farmers
- Automobiles have 75% of components manufactured in Mexico, US or Canada to qualify for 0 tariffs.
What is the European Union
27 countries in a single market with freedom of movement for goods, services, people, capital. Single currency
EU - Why?
- Pooling of resources
- Integrating markets
- Economic integration - raise living standards of poorer member states
2018 EU share in world GDP
16.3%
