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Reading 25: International trade - commerce among nations - Coggle Diagram
Reading 25: International trade - commerce among nations
TRADE AMONG NATIONS MAKES THE WORLD BETTER OFF
international trade can be one of the most contentious of political issues, both domestically and between governments
when a firm or an individual buys a good or a service produced more cheaply abroad, living standards in both countries increase
even if societies as a whole gain when countries trade, not every individual or company is better off
when a firm buys a foreign product because it is cheaper, it benefits, but the domestic producer loses a sale
those who perceive themselves to be affected adversely by foreign competition have long opposed international trade
WHY COUNTRIES TRADE
trade was driven by comparative rather than absolute costs
one country may be more productive than others in all goods, in the sense that it can produce any good using fewer inputs than other countries require to produce the same good
a country would still benefit from trading according to its comparative advantage
because of comparative advantage, trade raises the living standards of both countries
differences in comparative advantage may arise for several reasons
countries tend to export goods whose production uses intensively the factor of production that is relatively abundant in that country
countries well-endowed with capital should export capital-intensive products
countries well-endowed with labour should export labour-intensive products
the increase in competition coming from foreign firms puts pressure on profits, forcing less efficient firms to contract and making room for more efficient firms
likely the most important is that trade enables greater selection across different types of goods
there are clear efficiency benefits from trade that results in more products - not only more of the same products, but greater product variety
by enhancing overall investment and facilitating innovation, trade can bring sustained higher growth
the benefits of trade reforms - such as reducing tariffs and other nontariff barriers to trade - are much larger than suggested by conventional models
WHY TRADE REFORM IS DIFFICULT
when a country opens up to trade, capital and labour shift toward industries in which they are used more efficiently
this provides society a higher level of economic welfare
trade also brings dislocation to those firms and industries that cannot cut it
they often seek barriers such as import taxes and quotas to raise the price or limit the availability of imports
the benefits of trade are spread diffusely and its beneficiaries often do not recognise how trade benefits them
TRADE POLICIES
tariffs are much higher in certain sectors and among certain country groups
many countries have substantial barriers to trade in services in areas such as transportation, communications, and, often, the financial sector, while others have policies that welcome foreign competition
trade barriers affect sone countries more than others - often hardest hit are less eveloped countries
World Bank economists calculated that exporters from low-income countries face barriers on average half again greater than those faced by the exports of major industrialised countries
the Word Trade Organisation referees international trade
promote non-discrimination and facilitate further liberalisation in nearly all areas of commerce including:
trade and investment in service sectors
tariffs, subsidies, customs valuation and procedures
intellectual property
under the rule-based international trading system centred in the WTO, trade policies have become more stable, more transparent and more open
despite success, restrictive and discriminatory trade policies remain common