Econ Test W

Globalization

the spread of products, technology, information, and jobs across national borders and cultures. In economic terms, it describes an interdependence of nations around the globe fostered through free trade.

International Trade

transnational exchange of goods and services

sale of exports (goods and services sold to overseas buyers) and imports (foreign goods and services bought by domestic households and firms)

Free Trade

An agreement between countries where there are no barriers to trade.

Protectionism

putting up barriers to trade to protect your home market.

Protectionism benefits

• Sellers better off

• Able to protect infant industry

• Able to prevent unfair trade practice

• Able to diversify

• Tariff revenue

Protectionism Drawbacks

• Buyers worse off

• Inefficiency in domestic market

• Global misallocation of resources

• Trade war

• Cost of subsidies

Dumping

the selling of products in large quantities at a price lower than production cost in another country.

Forms of protectionism

1. Tariffs

2. Subsidies

3. Export Subsidies

4. Quota

5. Administrative Barriers

   1. Health,  Safety, Env. Standards

6. Voluntary Export Restraints (similar to a quota) 

7. Embargoes

8. Foreign Exchange Controls

9. Nationalistic Campaigns

Tariff Winners

• Domestic Producers

• Inefficient Domestic Producers 

• Government and those benefiting from tax expenditure 

• Domestic workers

• Can help combat dumping and offset loses (Anti- Dumping Tariff)

Tariff Losers

• Foreign Efficient Producers

• Consumers

• Industries where trade wars may begin

Export Subsidy

The government gives cash to firms based on how much they export.

Quotas

a government-imposed limit on the quantity or monetary value of a specific good that can be imported or exported during a given time period

World Trade Organization

An international organization designed by its founders to supervise and liberalize international trade

• 153 members

• Tariff Reduction: average tariffs slashed from 40% in 1947 to just 2.6% today

WTO responsibilities

• Trade regulations

• Negotiation framework

• Dispute settlement

• Development support

• Global Cooperation

WTO trade requirement

required to grant "most favoured nation" status to one another, which means that

WTO Limitations

• unequal bargaining power of member countries

• Trade rules unfair for developing countries

• Growing number of trade deals negotiated outside the WTO

Tariff Trade Diagram

Production Subsidy Trade Diagram

Export Subsidy Trade Diagram

Quota Trade Diagram

Free Trade Pros

• Buyers better off

• Efficiency in domestic market

• Improving global allocation of resources

• No trade war

• No cost of subsidies

Free Trade Cons

• Sellers worse off

• Unable to protect infant industry

• Unable to prevent unfair trade practice

• Unable to diversify

• No tariff revenue