Trade Agreements and Trade Wars

Question 1

Unilateral Trade Agreements

Answer 1

One country changing their trade policy towards another country.
Rare and non reciprocative, used with developing nations and forces comparative advantage as adjustment costs are created.

Question 2

Bilateral Trade Agreements

Answer 2

Agreement between two parties to reciprocate trade policy changes. (EU-Canada, EU-Japan Agreements).
Easier to establish than multilateral (none been made in past 20 years).
TTIP for example amongst 50 other bilateral agreements being made by EU.
Adjustment Costs to new trade, and trade diversion.
Power imbalance can force smaller party’s hand (UK USA).

Question 3

Multilateral Trade Agreements

Answer 3

High adjustment costs to new trade and FDI patterns
Hard to make (no agreement in 20 years)
Regional Comprehensive Economic Partnership (RCEP): Agreement between China, and other Asian nations. would be largest Trade Bloc if approved, conducting 30% of trade, but India has withdrawn signalling trouble.

Question 4

Effects of bilateral trade

Answer 4

• Adjustment costs to new patterns
• Transport costs high possibly
• Changes in NTBs
• Trade Diversion and Trade Creation

Question 5

Effects of multilateral trade

Answer 5

• Adjustment osts
• Little trade diversion
• Trade and FDI is based on transport costs
• Difficult to negotiate
• Difficult to enforce once finally agreed.