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7/29/2019 International Trade and Protectionism
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Definition
Why do countries trade
Patterns of trade
Advantages/ Disadvantages
Theories
Trade protectionism
LDC trade vs MDC trade
Diagrams
Trade is the exchange of goods and services between two or more parties.
Free Trade is when there are no artificial barriers set, by governments in
order to restrict the flow of goods and services between trading nations. Free movement of
goods and services between different countries.
Is Trade that satisfies certain criteria on the supply chain of the goods
involved, usually in the form of fair payments for producers often with regards to other
social and environmental factors. It promotes good standards for international labour and
gives workers a sense of economic self-sufficiency through fair wages and good employment
opportunities to the economically disadvantaged populations.
Government actions and policies that restrict or restrain international trade,
often done with the intent of protecting local businesses and jobs from foreign competition. Typicalmethods of protectionism are import tariffs, quotas, subsidies or tax cuts to local businesses and
direct state intervention.
Are policies, such as tariffs quotas and tax cuts, that are put in place in order to
protect domestic producers from international competition by redirecting instead of creating trade
flow.
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To gain goods and services that your countries is not able to produce or produce
well.
Trade to gain natural resources, technology, skills which are not evenly distributed in
the world.
Factors of Production aren’t mobile internationally
International specialisation and division of labour leads to economies of scale,
therefore you can improve your competitive edge in the global market.
Sharing information and technology leads to a reduction in prices and costs globally.
Growth in trade improves living standards.
Political peace can be negotiated using trade.
Global trade 1950- 8% , Global trade 2011-25%
Container revolution increased speed, efficiency, storage capability, productivity
causing high street revolution
Increased trade-> Increased GDP
Asia’s trade dropped export growth by 4.5% in 2008 due to recession: the recent
recession has meant that all parts of the global economy suffered which inturn
affected GDP, However Asia’s fall in trade was the lowest compared to Europe and
USA.
Terms of trade means the ration at which a country can trade domestic products for
imported products
Terms of Trade = Index of Export prices Index of Import prices
Exchange rate: The ratio at which two currencies are traded, the Price of one
currency in terms of another.
Terms of trade declines when the exchange rate is strong as exports fall.
X 100
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Absolute advantage is an
advantage in the production of
a good enjoyed by one country
over and above another when it
uses fewer resources to
produce that good than the
other country does. Output
levels cannot be improved byany other allocation of
resources within the
economies.
Ricardo is accredited with the
theory of comparative
advantage, stating that
specialisation and free trade
will benefit all trading partner’s
(real wages rise), and even
those absolutely less efficientmembers.
Could show increase on PPF to
point Z.
Competitive advantage refers
to the capacity of the firm to
make a cheaper, better product
than its rivals. The rivalry in
firms producing mobiles, cars,
computers etc. has lead them
to work hard at surpassing each
other at price, quality or both.
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Trade embargos, tariffs, quantitative restrictions, voluntary
export constraints, quotas.
Subsidies to regions – exports, public corporations.
Health and safety controls, marks of orgin, technical
standards, customs procedures, environmental measures.
A firm or industry’s sale of products on the world market at prices
below its own cost of production, damages its competitors in other countries.
A limit on the quantity able to import.
Free trade areas , common market which have customs unions.
A tax on imports.
Government payments to domestic firms to encourage
productivity increases to export.
Gov’t prioritise employment and economic growth
of their country over the benefits of fair trade, fuelled by political motives.
Goods may be produced domestically in
case of international conflict.
gov’ts subsidise new firms to allow them to
compete better, get LRAC because of economies of scale therefore maintain
competitive stance.
Argument by domestic producers in MDCs against cheaply
produced substitutes in LDCs, here the gov’t may provide subsidies but in the long
run the subsidies encourage ineffiency.
The cost advantage experienced by some may be due to the
exploitation of their workers and human rights I.e the use of sweat shops.
Dumping is unfair on Local producers as international
firms will supply at a loss in order to penetrate a market to create economies of
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scale over time, or to reduce competition by destroying domestic producers ability
to sell. Therefore gov’t can put tariffs in place to bring the cost of international firms
goods to the level it should be at.
Specialisation occurs in countries
for primary produce.
Increased competition-> dilution
of Monopoly powers.
Greater pressure on firms to keep
costs and prices down.Welfare gains -> all countries gain
Economies of scale -> LRAC falls,
prices fall, lowers inflation.
Dynamic efficiency gains from
innovation-> increase consumer
choice and SOL.
Access to new technology
Rising SOL and fall poverty
(growth directly helps the poor)
Removes national monopolies
to replace them with
international monopolies.
Transport costs outweigh
advantages.
Different qualities from
countries
Only firms and households can
specialise not countries. Causes
migration of firms to more
favourable locations.
Trade blocs stop trade
advantages.
Over specialisation in agriculture
or tourism could be knocked out
by natural disasters decrease
demand increase unempt.Declining trade in developing
countries.
Dumping
Copyright infringements
Domino effect i.e. Eurozone
crisis 2008.
Stimulates geriatric economies
Good for agriculture
Stops exploitation of labour
Develops countries export base
Sense of national identity
Reduces current account deficit
Increase employment
Stops dumping
Avoids import dependency
Creates trade retaliation/ trade
wars (banana wars 90s)
Less consumer choice
Less competition -> higher
prices-> inflation
Widen inequality gap.
Slows economic growth
Jobs losses in export industries
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Why does Africa have a low share in the world trade?
Short term problems:
Wide commodity price fluctuations and high dependency on
few exports.
Demand and supply for agricultural goods in very price inelastic
in the SR so prices are high.
Raising prices by faming cartels – in the SR quota restrictions may be imposed, decrease in
demand.
Stabilising prices by operating a buffer stock scheme- in reality buffer stock schemes aren’t
easy to operate, goods are perishable and costs are high.
Long term problems
Inefficient agricultural practices
Poor infrastructure
Civil conflicts
Miniaturisation: reduction of raw materials less imported from LDCs.
Demand for imported goods is price elastic, and income elastic.
Synthetic subsitutes reduce the demand for LC exports.
Agricultural protectionism: i.e. CAP imposes high tariffs on goods from LDCs.
LDCs face declining trade because:
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Improved technology in MDCs means they demand less because they produce more.
Demand for primary produce is price inelastic but they face competition from MDCS GM
crops so prices must fall dramatically to mop up as much demand as possible.
Demand for imported goods is income elastic as incomes grow in LDCs the demand for
imported goods grows faster than demand for domestic goods. (LDCs have lower trade
deficits).
International trade agreements- formation of cartels.
Linking of exchange rate to currency of a stable strong country fosters stability and growth.
Import substitution policies: protectionism.
Export promotion/ open door policy
Sustainable trade.
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