Unit 17: International Trade

Discuss whether imposing tariffs will benefit the domestic economy?

raise tax revenues

raise the price of imports

reduce demand for imports

protect infant industries

Imposing tariffs: disad for the domestic economy

cause retaliation

raise costs of imported raw materials

cause cost-push inflation.

Identify methods of trade protection that a country could use.

Tariffs

quotas

subsidies for domestic firms

administrative restrictions and boycotts (bans or embargoes).

benefits of free trade.

• specialization in what it is best at producing => improving economic efficiency

• encourages international trade and cooperation.

• increased competition => force firms to reduce costs (lower prices) and/or increase their productivity.

• Access to larger global markets => economies of scale

• employment opportunities

• access to raw materials and capital goods => up operational efficiency

• better-quality goods and services => up standard of living.

free trade vs international trade

Aspect	International trade	Free trade
Definition	Exchange of goods and services beyond national borders	International trade without any forms of protection
What it involves	Exports and imports	Exports and imports
Trade barriers	May exist	No barriers to international trade
Examples of barriers	Quantitative limits, taxes	None imposed

Why have many developing countries recently reduced protectionism and up inter trade

IMF pressure (loans, debts)

the awareness of the export successes of the East Asian Tiger (HK, SING, SOUTH KOR, TAIWAN)

The collapse of the soviet economic model

=> afraid of being excluded from the world trading system