Introduction

Question 1

What is International Trade about?

Answer 1

International trade has roughly tripled in importance compared to economy as a whole in the past 60 years
US exports and imports as shares of GDP been on upward trend
Both imports and exports fell substantially in 2009 and 2020 due to recession and COVID-19
Compared to the US, others even more tied to IT (e.g., Belgium, Germany, Mexico)
Due to its size and diversity of resources, US relies less than almost any other country

Question 2

Gains from trade?

Answer 2

• Most important insight
• Countries selling G/S almost always generate mutual benefits
• How could a country that is most (least) efficient producer of everything gain? –
• Countries use finite resources to produce what most productive at (compared to their other choices), then trade those products for what they want to consume
• Allows to export goods made with relatively abundant resources and import those with relatively scarce
• When countries specialise, may be more efficient due to large scale production
• May also gain by trading current for future resources (international borrowing and lending) and due to international migration
• May still harm particular groups – can harm owners of resources used relatively intensively in industries that compete with imports
• Thus may affect distribution of income

Question 3

Patterns of trade?

Answer 3

• Describes who sells what to whom
• Differences in climate – Brazil exports coffee, Saudi Arabia exports oil
• Why some countries export certain products can stem from differences in labour productivity, relative supplies of capital, labour, and land

Question 4

Effects of government policies on trade

Answer 4

• May affect amount of trade through –
• Tariffs – tax on imports or exports
• Quotas – quantity restriction on imports/exports
• Export subsidies – payment to producers that export or through other regulations that exclude foreign products from the market
• Trade policies often chosen to cater to special interest groups rather than maximise national welfare
• Governments tend to adopt tariffs, then negotiate them down in exchange for reduction in trade barriers of other countries