IPE WEEK 4 Flashcards
What is international trade?
: International trade is the exchange of capital, goods, and services across international borders or territories. It involves the buying and selling of products and services between two or more countries.
Why is international trade important?
In the age of globalization, nations worldwide engage in trade, leading to the development of international trade agreements such as the World Trade Organization (WTO).
Countries rely on each other to import goods that may not be readily available domestically.
Trade statistics, provided by organizations like the International Trade Centre (ITC), offer valuable insights into global trade dynamics, helping countries develop trade strategies.
International trade fosters economic development and promotes mutual benefit among trading partners.
What are the theories of trade?
Mercantilism emphasizes promoting exports and limiting imports to increase a nation’s wealth and power.
Adam Smith’s theory of absolute advantage advocates for unrestricted free trade, where countries specialize in producing goods they can produce most efficiently.
David Ricardo’s theory of comparative advantage argues that countries should specialize in producing goods they can produce relatively more efficiently compared to other countries.
The Heckscher-Ohlin theory focuses on differences in factor endowments between countries, such as capital and labor, to explain patterns of trade.
What is the impact of trade on the environment?
Shipping and aviation, essential for transporting goods globally, contribute to carbon emissions and climate change.
Demand for natural resources, driven by the production of consumer goods, puts pressure on the Earth’s resources.
Intensive farming for food production leads to soil degradation, biodiversity loss, and pollution of water systems.
What are the political obstacles to trade liberalization?
Politically motivated governments may resist liberalization due to concerns about redistribution of resources.
The costs of liberalization, such as job losses in certain industries, are more immediate and concentrated, leading to opposition from affected groups.
The benefits of liberalization, such as lower prices for consumers, are diffuse and may not be immediately apparent to all stakeholders, making it politically challenging to implement.
How does a tariff affect an open economy?
A tariff, a tax levied on imported goods, affects an open economy by increasing the price of imported goods for consumers. It leads to a decrease in imports and an increase in domestic production. However, it can also result in higher prices for consumers and potential retaliation from trading partners.
What is free trade, and why do governments often intervene in international trade?
Free trade occurs when governments refrain from restricting what citizens can buy from or sell to other countries. Despite nominal commitments to free trade, governments often intervene in international trade to protect the interests of politically important groups. These interventions can take various forms, such as tariffs, subsidies, and import quotas.
What are the main political arguments for government intervention in domestic markets?
Protecting jobs: Governments may impose trade restrictions to protect domestic industries and jobs from foreign competition, especially when industries feel threatened by more efficient foreign producers.
Ensuring national security: Industries critical for national security, such as aerospace and defense, are often protected to maintain strategic capabilities.
Retaliating to unfair competition: Governments may retaliate against unfair foreign competition by imposing tariffs or other trade barriers, prompting other countries to remove their trade barriers.
What are the main economic arguments for government intervention in markets?
Strategic trade policy: Governments may intervene to help domestic firms attain first-mover advantages or overcome barriers to entry in strategic industries.
Infant industry argument: Industries may be protected until they become viable and competitive internationally, allowing them to develop and contribute to the economy’s long-term growth.
What are the main instruments of trade intervention policy used by governments?
Tariffs: Taxes levied on imports to increase their prices and protect domestic industries.
Subsidies: Payments or benefits provided to domestic producers to reduce costs and promote competitiveness.
Import quotas: Direct restrictions on the quantity of certain goods that may be imported into a country.
Voluntary export restraints: Quotas on trade imposed by exporting countries at the request of importing countries.
Local content requirements: Mandates that a specific fraction of a good must be produced domestically.
Administrative policies: Bureaucratic rules designed to make it difficult for imports to enter a country.
Antidumping policies: Measures aimed at punishing foreign firms that engage in dumping, selling goods below production costs.
What is trade facilitation, and how does it differ from tariffs in terms of government revenue and impact on domestic producers and consumers?
Trade facilitation refers to the simplification, standardization, and harmonization of procedures and information flows required to move goods from seller to buyer and facilitate payment. Unlike tariffs, which generate revenue for the government, trade facilitation measures do not directly contribute to government revenue. However, both tariffs and trade facilitation can benefit domestic producers by increasing the cost of imported goods and leveling the playing field. Consumers, on the other hand, may face higher prices due to tariffs, while trade facilitation measures can lead to cost savings and increased efficiency in the supply chain.
