Trade Barriers

Question 1

Why would you start Trade Wars?

Answer 1

• Infant industries
• Production of goods that have little dynamic potential or fluctuating markets
• Dumping and other unfair policies
• Foreign Monopolies
• National Security
• Protection of culture or rights

Question 2

What does Moore say about Tariffs in a Large country?

Answer 2

• Overall, imposing a tariff Is negative
• But, if an economy can heavily influence demand, this will hurt world prices
• The difference between the original World Price and the new World Price + Tariff is smaller than the cost of the tariff
• Terms of Trade effects (Old World Price - New World Price) must be considered Vs Cons. Surp loss
• Retaliation can occur and Sub-optimal decisions can arise because of imperfect information

Question 3

What does The Economist say about Who Pays for the Tariff? (Relate to USA Vs China)

Answer 3

• Could be foreigners, but many Tariffs “Bite into” domestic budgets
• Foreigners pay if prices slump in response or if the domestic currency appreciates
• Only 30% of ERM is because of price changes and trying to switch suppliers can be costly and inefficient
• Overall, Americans would likely have to pay higher prices of 10-25% because of the tariff

Question 4

What does Krugman say about the Begger-Thy-Neighbour policies?

Answer 4

• Imperfect Information is huge in economics
• Becomes tough to create econometric models and governments often get them wrong
• Often, they will never have sufficient evidence to apply theory and industries are intertwined due to finite resources
• Beggar-Thy-Neighbour policies are policies that increase a nations welfare at the expense of another’s.
• This is net negative

Question 5

What does Parkin say about Comparative Advantage?

Answer 5

• The advantage gained by a party that can complete a task with lower opportunity costs than another
• Stem from differing skill levels, genetics, resources or a combination
• Best globally if the world specialises and trades

Question 6

Sloman on Brexit and International Trade

Answer 6

• Agreeing Post-Brexit deals are important
• UK could have been part of the EEA (Norway, Liechtenstein) but isn’t
• Employs more of a Canadian stance- multiple trade agreements with other nations
• Hard(ish) Brexit; total Brexit would be bunning off the EU and just trading with NATO
• Brexit means losses in Technology Transfers, a larger market and greater competition