Trade Agreements and Protection: Basics Flashcards
What are five types of protection?
Tariff
Quota
Subsidy
Local content rules
Export incentives
What are the effects of a tariff?
Higher domestic prices
Increased government revenue
Fewer imports
What are the effects of a subsidy?
Lower domestic prices
Increased government spending
Fewer imports
What are the effects of a quota?
Higher domestic prices
No impact on government budget
Fewer imports
What are the effects of local content rules?
Higher domestic prices
No impact on government revenue
Fewer imports
What is the benefit of increasing the number of countries involved in a trade agreement?
More countries that can specialise in producing their comparative advantage, leading to increased efficiency and trade
What are the costs of increasing the number of countries involved in a trade agreement?
1) Takes longer to negotiate
2) Reduced sovereignty
What is meant by the idea that ‘signing a multilateral trade agreement can reduce sovereignty’?
A country gives up some control (sovereignty) over its laws when it signs an international agreement.
The more countries that are involved in negotiations, the less control the country will have over the final requirements of the agreement.
What is an example of a monetary union?
The EU
What are TWO examples of a trade bloc?
The EU
ASEAN
What is ASEAN?
The Association of South-East Asian Nations – a trade bloc comprising 10 countries including Singapore and Malaysia, but NOT Australia
What are 3 multilateral trade agreements that Australia is part of?
APEC
RCEP
CPTPP
What is RCEP?
The Regional Comprehensive Economic Partnership - a multilateral trade agreement between the 10 ASEAN countries, plus Australia, China, Japan, South Korea and New Zealand
What are 2 bilateral trade agreements that Australia is part of?
ChAFTA (with China)
ANZCERTA (with New Zealand)
What is the role of the WTO?
- Provide a forum for global free trade negotiations
- Provide tribunals to enforce trade agreements
What is the role of the International Monetary Fund?
Role is to maintain the stability of global financial system
How does the IMF maintain the stability of the global financial system?
- Provides loans to governments close to defaulting
- Loans come with strict requirements on policies the country must implement (to reduce the risk of defaulting again)
What is the role of the World Bank?
Provides loans to developing countries for development projects, such as infrastructure, health, and the environment
What is the role of the United Nations in the global economy?
Where countries gather to address global problems, such as human rights, global poverty, the environment, and crises.
Has set Sustainable Development Goals for 2030
What is the OECD?
A research body to promote policies to improve economic growth and living standards for advanced economies
What are the G7/8 and G20?
Forums for governments of large economies to coordinate responses to economic and other political issues.
The G7/8 includes 7 large economies (or 8 with Russia), and the G20 includes the largest 20 economies in the world
How does the IMF help to improve global economic growth?
1) They help governments continue to pay for basic services (e.g. welfare, police) when they are close to defaulting - preventing a further drop on aggregate demand and economic activity
2) They ensure foreign lenders get repaid, thus preventing a potential financial crisis (where banks lose their investments and are unable to repay their customers or make any new loans)
