Lecture 2: Setting the Context Flashcards
What is absolute advantage?
countries should export products that they produce efficiently and import products they cannot
What is a key question of absolute advantage theory? And what is the answer?
What relevance international trade has to a country that has no absolute advantage? Theory of comparative advantage
What is the theory of comparative advantage?
even if one country has absolute advantage over another country, both countries are still mutually advantageous by specializing in producing and exporting goods in which its comparative advantage is greatest, or comparative disadvantage is smallest
What is a key problem of comparative advantage? What is the answer?
the theory assumes that countries will specialize completely in those products in which they have a comparative advantage. Hecksher and Ohlin’s Factor Proportions Hypothesis
What is factor proportions hypothesis?
countries will tend to specialize in producing good that use their abundant factors of production more intensively, and will import goods the use their scare factors more intensively
What is a key problem of factor proportions hypothesis?
no adequate explanation of manufacturing activities in advanced industrialized economies
What is the product cycle theory?
firms in different countries will specialize in their manufacture depending upon the particular stage the product is in. In the later life of a product, lower labour cost countries have the comparative advantage
What is choice architecture?
the design of different ways in which choices can be presented to consumers, and the impact of that presentation on consumer decision-making
What are the qualifications to the case for free trade?
- reciprocity
- the optimal tariff
- infant industries
- revenue raising
- national security
- adjustment costs
- health, safety, and environmental concerns
What is the Prisoners Dilemma in relation to reciprocity and how can it be avoided?
Country 1 refuses to remove any existing trade restrictions on imports unless its trading partner agree to do the same but the trading partners knows country 1’s interest is to liberalize no matter what so they withhold hoping country 1 liberalizes for free. This can be avoided with trade agreements that have reciprocal tariffs
What happens when a monopsony power tariff exporters in optimal tariff?
the exporters may be forced to reduce the price of their product and absorb the tariff
What is the benefit of infant industries? who can take advantage of this the most?
Domestic industry can develop by selling to a protected domestic market. LDC under the GATT
What constitute a vast majority of government revenue for industrialized countries?
income, consumption, and business taxes
What is the case for national security in the case of imports and exports?
A case for trade restrictions on imports is to protect domestic industries. A trade restriction on export is sometimes invoked to restrict exports of strategically sensitive products or military material to unfriendly countries
What are adjustment costs?
firms, workers, and communities may face adjustment costs with abrupt forms of trade liberalization
What concerns can justify trade restrictions of an importing country?
to protect health, safety, and environmental conditions of importing country
What are objections to Free Trade?
- globalization is leading to global monoculture
- trade liberalization exacerbates inequalities of wealth between and within countries and threatens the welfare state
- trade liberalization trumps environmental, health, and safety, labour standards, and human rights concerns
- trade liberalizations undermine economic self-sufficiency in food production and other staples, creating dangerous dependencies on foreigners
- the WTO is an undemocratic and unaccountable form of global government that improperly constrains domestic political sovereignty and democratic politics
What is a refute for the critiques of free trade?
trade liberalization is likely to increase average per capita incomes by increasing economic productivity
What is the Smoot-Hawley Tariff?
raised average duties 60% in the US on imported goods and provoked retaliation policies by trading partners
What is NTTB?
Non-tarrif trade barriers
Who is in NAFTA?
US, Canada, Mexico
Who is in MERCOSUR?
latin America
Who is in CARICOM?
Caribbean
Who is in ASEAN?
Asia
Who is in COMESA?
Eastern and Southern Africa
What does Article 27 have to say about tariffs?
periodic negotiations on mutually beneficial tariffs, when agreed on they are considered tariff bindings, all members must adhere to them
What does article 7 have to say about tariffs?
value for customs purposes of imports must be actual value
What does article 8 have to say about tariffs?
restricts administrative charges on inbound goods to cost of services rendered
What does article 11 have to say about quantitative restrictions?
prohibits use of quotas or import/export restrictions on importation or exportation of good because if barriers of trade were expressed solely as tariffs, the relative transparency of tariffs relative to quotas make their reduction possible overtime through negotiation rounds
What are exceptions to article 11?
- agricultural trade
- art. 12 and art. 18 allow quotas is there is a balance of payment problems or if a developing country is protecting an infant industry
What does art. 1 have to say about non-discrimination?
duties for different countries must be the same between like-products
What does art. 3 have to say about non-discrimination?
once boarder duties have been paid, like-products from foreign countries will not have internal taxes places on them that domestic like-products do not have
What leads to countervailing duties under art. 5?
country A subsidizes its exports into country B’s market and country B can place a countervailing duty to level to playing field of their own domestic prices with the incoming international prices of products
What is SPS?
the Ssnitary and Photo-sanitary Measures Agreement
What is TBT?
technical barriers agreement
