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CHAPTER 11 : International trade - Coggle Diagram
CHAPTER 11 : International trade
introduction
international trade = exchange = buying & selling goods and services internationally (import & export)
it allows greater competition and more competitive pricing in the market
The exchange of goods affects the world’s economy.
We make goods and services obtainable.
Not otherwise be available to consumers globally.
No international trade = fewer resources,
History
After WW2, the GATT ans other institutions and new laws were implemented : enforce regulation on a free trade market and promote peace
International trade has been pushed forward by :
Boost in cross border exchanges
New information technologies
Fast transportation
Lowering tariffs (taxes on importing goods, douane)
Cloud computing
Two ways nations deal with : we can open to free trade or being protectionnist
protectionism :
Economic policies
Protect domestic industries against foreign competition
They can include : tariffs, quotas, other restrictions placed on the imports of foreign competitors
Tariffs : chief protectionist measures (=- droit de douane)
The OECD promote :
Free trade was invented by J-S. Mill (british economist)
⇒ claimed that “trade barriers (were) chiefly injurious, i.e damaging, to the countries imposing them”
“Free-trade” implies that goods and services can be bought and sold between countries without tariffs, quotas or other restrictions.
the example of the american steel (=acier)
American bought steel in other countries cause it was too expensive, so the gov put tariffs on imported steel. But American do not buy American steel because both were expensive
Economic consensus : world economy = benefits from freer trade.
Yet, many countries favour restricting trade and implementing protectionist policies.
History of international trade
Mercantilim
17th century in europe
obj :
.
Achieve a favourable balance of trade
I.e he value of exported goods > imported goods
export more = good, import less = bad
import restrictions
export subsidies (=subventionner)
FOR the gov intervention
, use taxes to manipulate balance of trade, achieving individual wealth
Adam smith's the wealth of nations
he attacked mercantilism smith is against the reduction of import and the subsidies of export.
he advocated that economic growth specialisation (=more productivity)
international trade increase in market size for every country
==> more output and production
International trade benefits all
Increase in the world's productivity and general output, cf Ricardo and comparative advantage of trading with other nations
The interwar period
1929 crash = period to great depression
many countries resorted to protectionist practices
reduced import (tariffs & quotas)
reduced export (other countries can't purchase their good)
it leads to a fall in world trade
after WW2, countries decide to turn away from protectionism and reduce trade restrictions
Bretton Woods system
president = Roosevelt UK pm = Churchill
That was an unprecedented cooperative effort, over a decade of protectionism, they broke the barriers between economies. Enormous international project.
The economical agreement were difficult to reach : Because the preparations began more than two years before the conference. Financial experts held meetings to reach a common approach
The meetings has 3 main objectives :
ensure a foreign exchange rate system
Prevent competitive devaluations
Promote economic growth
The issues :
How to establish a stable system of exchange rates
How rebuild countries devastated by the war
so they established :
IMF : role = control exchanges rates and lend reserve currencies to nations (=prête des réserves aux nations)
December 1945
Countries agreed to keep their currencies fixed exchange rate
IBRD (or world bank) = provide financial assistance and rebuild countries devastated by WW2, and focus shifted from reconstruction to development
Also provides financial assistance for economic development of less developed countries
1971
GATT
FIRST WORLDWIDE MULTILATERAL FREE TRADE AGREEMENT
signed in 1947 in geneva
those who don't signed : Germany, USRR
Trade treaty : implemented to eliminate harmful trade protectionism
Boost economic recovery and trade.
According to the preamble : “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.”
The main purpose :
Increasing international trade by eliminating or reducing various tariffs; quotas and subsidies
Maintaining regulations at the same times
From 1947 to 1986 : thegatt held eight rounds (=negotiation, talk) the 8th took place in uruguay
the other topic :
Intellectual property
Agriculture
Dispute settlement
WTO
created in 1995 the purpose = replace the GATT (it did)
WTO deals with intellectual property and the trade in services
Only global international organisation dealing with the rules of trade between nations.
main functions :
help producers of goods and services
help exporters and importers protect and manage their businesses
These agreements/documents are like contract
They provide legal framework for conducting business among nations
THe goal is to ensure that trade flows smoothly predictably and freely
The WTO members are required to obey various rules :
Non discrimination = the principle of most-favoured nation treatment : (MNF)
Countries cannot normally discriminate between their trading partners : i.e : trade concessions that a country makes to one member must be granted to all signatories.
exception :
Free trade areas and customs unions (e.g : the EU)
Countries are allowed to abolish tariffs between themselves
But still maintaining them with the rest of the world
⇒ only permitted only under strict conditions :
MNF = every time a country lowers a trade barrier or opens up a market ⇒ has to do so for the same goods or services from all its trading partners
⇒ reciprocity
any country benefiting from a tariff reduction made by another country mist reciprocate by making similar tariff reudction itself
quotas are prohibited : fair competition :
rules that favour fair competition
Discouraging unfair trade practices
⇒ e.g : export subsidies and dumping products at below cost to gain market share
Dumping = selling prices foreign at a very low price
WTO has the power to impose sanctions, countries that would break trade agreements, disputes between member nations = settled by the WTO
The BRICs
In 2001, a chief economist came up with the acronym
The group was founded in 2009 as an informal club. In 2010 South Africa joined as the smallest country
The groups accounts for 44% of the population and 1/4 of the global economy
The group usually meets once a year and operates by consensus (general agreement)
They create their own bank to concurrate the IMF
40 countries have expressed interest in joining or becoming a shareholder in the
New Development Bank
(came into existence in 2015)
It was established to mobilise financial resources for infrastructure and sustainable development projet in BRICS and other emerging economies, as well as in developing countries
The group is divided over the question of expansion :
China would like to group the get bigger to challenge the US at the economic and geopolitical level
South Africa and Russia also support expansion (russia is looking for allies in the war against ukraine)
Brazil is more sceptical (British English)/ skeptical (American English) and India is undecided
Despite (=malgré) their strong growth, many have said it will be unsustainable.
A growing population will rapidly deplete resources and could sabotage the ability to grow at the same pace
Another critique is the overwhelming (=accablante) dominance of china
Without china, the BRICS would gave little political clout (=poids / power) And this give China's economy alone is larger than the rest of thee BRICS combined.
All five countries have mowed records on human rights and ongoing conflicts with their neighbouring
In America :
1st world : countries who were allied with the America during the WW2
2nd world : countries who were allied with the USSR during the WW2
3th world : countries who were not allied with anyone during the WW2
The composition of international trade
Trade in goods
definition : Trade in goods includes
all goods which add to, or subtract from, the stock of material resources of a country by entering its economic territory (imports) or leaving it (exports)
We trade mostly manufactured goods : made by companies (almost 2/3 of all merchandise exports = largest category of traded goods)
Fuels and mining products : make up = around 20% of merchandise export, agricultural product = about 10%
Trade in service
example :
Transport services (both freight and passengers)
Travel services
Communications services (postal, telephone, satellite, etc)
Construction services
Insurance and financial services
Computer and information services
Cultural and recreational services
Trade in services leads to exchanges : ideas, technology, know-how
The larger importer : US, China, Germany, France
The largest exporter : US, UK, Germany
Benefits of international trade
David Ricardo and the theory of comparative advantage
revenues earned from the exports : used to import goods, which cannot be produced in sufficient quantities
In which goods should a country specialise in ? What should import and export ?
Specialisation = where they have a comparative advantage (when a country can produce at a lower cost)
Factors of production = different from one country to another, the ability to supply goods differs between countries
differences in :
Population density
Labour skills
Climate are better for resources than other
Raw material (fuels)
Access to equipment
To Sum Up :
Countries should specialise where they have a comparative advantage and import goods they don't produce
Trade benefits to all countries, but some of them, erect (=ériger) barriers to trade (Tariffs / customs duties on import, quotas / limited the amount of goods that can be imported)
Barriers to imports :
subsidies on domestic products : leads to price advantage over imported products
Administrative regulations (customs delay, excessive paperwork)
Dumping
gov may also favour domestic producers by subsidising their exports. = dumping
dumping = export a product at a price that is lower in the foreign market, than the prix charged on the domestic market
==> It's illegal
WTO : reserves judgement on whether dumping is unfair competition.
Unless a country can show negative effects an exporting firm has had on its domestic producers
Most nations use tariffs and quotas to protect their domestic industry, to counter dumping