International Trade

What is mercantilism

Economic system focused on exporting more goods than importing

What century did mercantilism dominant

16th century to 18th century

How did mercantilism use colonialism

Colonies supplied cheap raw materials and bought finished goods, making the home country richer

What was the triangle of trade

A trade route where Europe sent goods to Africa, enslaved people went to the colonies, and raw materials went back to Europe.

How does the triangle of trade work?

- Manufactured goods are sold for enslaved people

- Enslaved people are sold to plantation owners

- Raw materials (with slave labor) are sent back to Europe

Europe gets cheap materials and sells finished goods

What is protectionism

Using tariffs and trade limits to protect a country’s own industries from foreign competition.

What is the Navigation Acts from 1600

Prevented their colonies from selling directly to other Europeans countries

Other Europeans countries had to buy goods in England

What are the Com Laws

British laws that put tariffs and import restrictions on foreign grain to keep grain prices high to protect British landowners and farmers from cheaper imports

What is Adam Smith big idea

Free markets, not government control, create the most wealth.

What is the invisible hand

Individuals pursuing their own self-interest in a free market end up benefiting society, without anyone planning it.

What was Adam Smith against?

Mercantilism

What is comparative advantage?

A country should make what it gives up the least to produce, even if another country is better at everything.

relative efficiency of production

Who came up with comparative advantage?

David Ricardo

What is absolute advantage

the ability to produce a good using fewer inputs than another producer

Who came up with absolute advantage

Adam Smith

What is the factors proportions theory/Heckscher Ohlin theory

Countries export good that use their abundant factors of production and import goods that use their scarce ones

What is the new trade theory

Countries trade because producing in large amounts makes goods cheaper, so a few big firms end up dominating global markets.

What is the strategic trade theory

government intervention can help domestic companies compete in industries where a few large companies dominate the global market

What is a consequence of Western governments protecting domestic firms from Chinese competition

It stifles innovation

What is competitive advantage

competition between firms

An example of factor proportion theory and practice?

A high labor cost country trades wine with a low labor cost country who exports cloth.

Why do some observers think industrial policy is important once again

Because of the insights of strategic trade policy

What is the GSTP (Global System of Trade Preferences)

Created by the G77 bloc of developing countries, to promote trade among nations in the Global South, through preferential tariff reductions.

Who are the G77

Largest group of developing countries at the United Nations

How does strategic trade theory build on the insights of new trade theory

New trade theory shows that a few big firms dominate global markets, and strategic trade theory says governments can help their firms compete.

According to the Economist, which two factors help explain why China is increasingly engaging with the Global South

To avoid restrictions on trade with China put in place by the Global North and sell to a rapidly developing market

In the decade after the Free Trade Agreement was signed with the United States in 1989, how much did exports grow as a portion of Canada's GDP?

43%

Why was a former Siemens executive unhappy that the European Union blocked a merger with Alstom

Siemens was left vulnerable to foreign competition

Descriptive theories

Explains what trade patterns exists

Prescriptive theories

Advise how governments should handle trade

How did mercantilists measure a country’s wealth

By its holdings of gold, silver, etc (government surplus)

Why did mercantilist believe governments had to regulate trade

They thought the world’s wealth was fixed (gold and silver), so no one country could only gain at another’s expense

What is a ‘favorable balance of trade’ in mercantilism and why was it wanted

Exporting more than importing, because the surplus built up treasure that paid for armies and national strength

What role did population play in mercantilist thinking

A large population was seen as wealth (power in numbers)

How did mercantilist powers use colonies and military power

Colonies supplied cheap raw materials and bought finished good back, and military force protected markets

Why were Britain’s Corn Laws repealed

Food had become too expensive

Why did the UK move towards free trade in the 1800s

Adam’s Smith’s idea that trade helps everyone more than protection took hold

In The Wealth of Nations, how did Adam Smith redefine a country’s wealth

The total good and services available to its people

Why did Smith argue that trade is beneficial to both parties

Rational parties only trade if it leaves each of them better off

According to Smith, what does specialization lead to, and what should countries do

Greater efficiency and productivity; countries should specialize in what they do best and trade for the rest

What weakness in Smith’s absolute advantage idea did Ricardo challenge

If no country has a mutually beneficial advantage, trade won’t happen

Natural sources of advantage

Climate, natural resources and geographic location

Why are Swiss watches used as an example of an acquired advantage

The skill was built through careful design over many generations

Difference between absolute and comparative advantage

Absolute: making a good with fewer resources
Comparative: making it at a lower opportunity cost than a partner

According to new trade theory, why do similar countries trade with each other

Because economies of scale lower costs, and trade gives consumers more variety

What are economies of scale

The more your produce, the lower the cost per item becomes

What question does strategic trade theory try to answer

How single firms can dominate global markets

What does strategic trade theory suggest

government intervention can help domestic firms

What is industrial policy

government support for favored industries using tariffs, tax breaks

What did Hamilton propose in 1790 as an early form of industrial policy

Tariffs on imported good to encourage Americans to buy American products

Why is the US government’s role in funding new tech called ‘de facto industrial policy’

Because defense, space, and health programmes funded and bought new tech

How large was the US government spending on research and development in the 1960s

More than all other governments, all foreign private forms and all US private firms combined

What was the main goal of the US Chips Act

To bring chip factories to the US, reduce reliance on East Asia and keep up with China

How did the US share of global chip making change between 1990 and 2020

Fell from 37% to 12%, while China rose from zero to 15%

Why did chip fabrication move to East Asia

Land and labor were cheaper there and there were many subsidies

Why is Taiwan a national security concern in the chip debate

Because the US buys over 90% of its advanced chips from Taiwan, which China claims

What is the main criticism of industrial policy

That governments pick winners instead of letting the free market decide which firms succeed

According to The Economist’s 2022 special report, what weakened the ‘less state is better’ consensus

The 2008 crash, loss of middle-class jobs to foreigners or robots. climate crisis

Four ‘old tools’ does the Economist say governments are dusting off

Industrial policy, trustbusting, Regulation, and taxes

What reasons do Western leaders give for reviving industrial policy, according to the Economist

Preserve the country’s place in the global pecking order

Support domestic economic development

What risk does the ‘industrial-policy arms race’ create, according to the Economist

Everyone backs the same industries which can push up input costs,

What does Dani Rodrik say governments need for industrial policy to work

Ability to let losers go

Where did the Economist say heavy Chinese state spending has often disappointed

Aircraft, chipmaker SMIC, while Alibaba and Tencent thrived away from the state

Why did Siemens and Alstom want to merge their rail divisions and what happened

To face the Chinese trainmaker CRRC; EU blocked it

What reasons does Paul Krugman give for a limited amount of industrial policy

Positive spillovers between tech firms (silicon valley)

Geopolitics (reliance on Taiwan for chips)

Why is Krugman’s main criticism of the Trump administration’s approach in ‘Making Sweatshops Great Again’?

Tries to bring back low-wage, low tech industries while attacking policies that support industries of the future

Why does Krugman think the US tariff on Canadian aluminum makes little sense

Canada’s aluminum is cheap because it has abundant hydropower, aluminum is important to the US

What does Global South mean

Developing countries

Why has the Global North grown doubtful about free trade

Because cheap-labor countries send manufactured good not just raw materials

What trade difficulty does the Global South have

Struggle to trade with each other

Which areas does the WEF article say the GSTP could help with

Clean energy transition, health supplied, food security, circular economy

Ways the Chinese business expanding abroad, according to the Economist

Globalized supply chains, selling to consumers in the developing world

What numbers does the article give for Chinese firms’ growth in the global south

Greenfield FDI tripled to $160bn, sales in the global south quadrupled since 2016 to $800bn

Which Chinese firms produce about half of the smartphone bough in Africa

Transsion

What lesson does the Economist draw for Western policymakers

Trade can bring extraordinary benefits, and protecting MNEs from competition is costly

What does the Economist advise governments in the global south to do

Press Chinese firms to hire locally

What are special economic zones (SEZ)

Areas inside a country where companies get lower taxes and less government interference

What does Quinn Slobodan argue about globalization and border

Borders aren’t disappearing, new kinds are appearing inside nations around SEZs

According to the Bloomberg article, how many SEZs exist worldwide

Between 2,500 and 10,000 with 1/3 created in the past decade

What was Thomas Friedman’s view in the World is Flat

Tech has flattened the playing field

What was Thomas Friedman’s view in the World is Flat and how did critics like Stiglitz, Chang, and Brown respond

Stiglitz: globalizations worsens inequality

Chang: free trade needed state intervention

Brown: anxiety led to walls

Why does the article call Singapore a ‘hybrid’ model

It’s a full country that cuts taxes and regulations for international firms while keeping strong political control

What are the main upsides and downsides of SEZs, according to the article

Efficient but they can reinforce inequality and shelter illegal activity