international trade and protectionism

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.



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



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.



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



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



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:



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.

international trade and protectionism

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