trade dilemma

Question 1

why is trade good

Answer 1

• access to goods + services that we cant get ourselves/be done cheaper/better
• allows countries to be more productive through comparative advantage

Question 2

comparative advantage

Answer 2

product country can produce with smaller opportunity cost than its trading partners

Question 3

Adam smith

Answer 3

• ‘if foreign country can supply us commodity cheaper than we can make it, better to buy it off them with other produce we can make ourselves in way which is advantageous’
• countries then open up to trade get richer

Question 4

US + china trade

Answer 4

2017 tariffs on goods coming from china + threat of more to depress trade

Question 5

costs of US tariffs on china

Answer 5

• 300,000 JOBS LSOT
• DESTROYED 0.7% OF ECONOMY
• GOTTEN $316 billion poorer
• farmers lost $24 billion
• firms paid $46 billion extra in tariffs

Question 6

mercantilism

Answer 6

belief exports = good + imports = bad

Question 7

ways to block imports

Answer 7

• tariffs - taxes on imported goods
• non - tariff barriers
  
  • prohibition
  • quota - limit on quantity of certain foreign goods
  • subsidy - money given by state to industry to keep prices low
  • dumping - temp’ flooding foreign markets with under-priced goods to eliminate competitors

Question 8

US acting like mercantilist

Answer 8

sugar tariff
- sugar more expensive in US - use corn fructose syrup instead
- if barriers were to be dropped:
- consumers win + save money
- farmers in florida lose out and lose work - florida is key SWING STATE in elections

Question 9

trade as a collective action problem

Answer 9

• leaders want OTHER countries to be open
• leaders want OWN countries closed
• states have shared interest in reducing global trade barriers but private incentive to keep own barriers up

Question 10

how to overcome collective action problem

Answer 10

• world trade organization WTO
  
  • dominant economy (US) pay costs of establishment

Question 11

what WTO rules

Answer 11

• reduced incentive to cheat
  
  • reduced relative gains
  • incentivised organised domestic constituency to lobby for participation + compliane with rules
• encourgaed reciprocity + conditional cooperation
  
  • Granting of mutual concessions in tariff rates, quotas, or other commercial restrictions

Question 12

prisoners dilemma

Answer 12

countries have incentive to tax imports so that money doesn’t get funnelled out
even though
evidence shows in a free market both actors make more money