International Trade and Trade Barriers Flashcards
Why is voluntary and free trade good?
It generates wealth for both involved.
This has been proved by expt..
Why aren’t the benefits of free trade realised at international level?
Before WW2, countries had bilateral agreements.
This means that they had special interests protected and also trade barriers were common.
How did the industrial world try to improve the benefits of free trade?
Towards the end of WW2 They gathered in Bretton Woods New Hampshire to address the economic issues that caused international conflict.
This produced the World Bank and the IMF.
What did the conference in New Hampshire not produce and how did it become addressed?
It didn’t form an organsation to encourage international trade cooperation.
In 1947, the USA and many nations formed the GATT.
What does GATT stand for and what is it’s purpose?
The General Agreement on Tariffs and Trade
The goal was to reduce trade barriers between the members countries to achieve free trade.
After the formation of GATT, international trade grew. What happened?
There was a rise in living standards among the member states.
in 1995, the GATT became the WTO.
More countries joined the WTO so there were even fewer barriers to trade.
So international trade expanded and many nations benefited.
For example, Ireland joining the EU.
What are the detractors to international trade?
4 exist
Environmentalists - Countries will specialise in production who have less envonmental regulations
Labour Unions - Production shifts to countries with little or no unions and pay low wages.
Human Rights Groups - Production is shifted to countries with inhuman practices and terrible working conditions.
Politicians and constitutents - Loss of national identity due to decisions concerning them taken from international bodies abroad.
If no trade barriers generate wealth, why do countries sometimes apply them?
5 points exist
Voluntary free trade generates wealth for all of society but sometimes costs are borne by a specific group.
Trade barriers can be limited to punish another country, preserving their industry, raising tax revenue, saving the environment or even causin social change.
What are the types of trade barriers?
3 types
Tariffs, quotas and embargos
What are tariffs?
Tariffs are a trade on tax. They can be used to rasie revenue or serve to benefit a segment of the economy.
Why, with an example, would a protective tariff be implemented?
What is a drawback?
You would implement a tariff on imports if your industry were subject to foreign competition.
For years the US steel industry was protected from foreign competition
Drawback - Preventing competition encourages waste, efficiency and a lack of quality
Why, with an example, would a Revenue Tax be implemented?
What is a drawback?
To raise revenue for the government
The Smoot-Hawley tax in 1930 was intended to protect US industry and raise much needed tax revenue for the government.
Drawback - Might not raise revenue because people may simply stop buying the more expensive foreign imports.
Why, with an example, would a Export Tax be implemented?
What is a drawback?
To prevent shortages of a product in the country
In 2007, India imposed an export tax on rice to provent food shortages.
Drawback - Might give producers an incentive not to produce.
What is a quota?
It is a limit on trade.
It would be used to limit the number of imported goods coming into a country.
Give an example of a quota being used and the resulting downside.
when? where? why? how was it avoided? the consequence of avoiding?
in the 1970 - 1980’s, the US imposed a quota on the importing of foreign cars to limit competition and preserve american jobs.
It was supported by the labour unions and car manufacturers.
It led to higher prices and lower quality.
The quota was bypassed by Japanese and German companies by setting up their factories in the US.
This caused domestic competition to increase and the factories were built in states where unions had less power, resulting in harm to the labour unions
