International Studies 101 (Week 5)

Global Trade

the regularized exchange of commodities between the core, periphery, and semi-periphery

Exports

commodities produced in one country and then are sold to another country (E.g. The United States sells American-made cars to Europe)

Imports

commodities that are bought by one country that were produced in another country (E.g.: The United States buys European-made cars from Europe)

Product Differentiation

Makes products stand out from competitors; means that most trade occurs between countries in the core; limited need for buying things from periphery and semi periphery countries because they don't have competitive goods

Three Sector Model

Global trade falls under primary, secondary, and tertiary sectors

Primary Sector

extraction and production of raw materials such as mining, forestry, fishing, logging, agriculture

Secondary Sector

conversion of raw materials through industry into finished goods

Tertiary Sector

the provision of services such as healthcare, education, finance, retail, tourism, transportation, entertainment; US us a service economy (tertiary)

Capital vs. Consumer Goods

Capital goods - primary sector goods are sold between companies

Consumer goods - go directly to the consumer

The Core Model of Trade

The Distance Principle

The Size Principle

The Distance Model of Trade

Trade flows between countries decreases as the geographic distance between them increases (long distance trade results in higher costs)

The Size Principle

Trade flows between countries increases as the economic distance between them decreases

Economic Distance

Large countries then to trade with larger countries and smaller countries tend to trade with smaller countries

The Periphery Model of Trade

The Unequal Exchange Principle

The Unequal Exchange Principle

Trade flows between core and periphery are unequal due to respective differences in goods traded with each other

Trade Controls

Trade Liberalization

Trade Protectionism

Trade Liberalization

the reduction of the protections of a domestic market from a foreign country’s imports

Trade Protectionism

the protection of a domestic market from the competition of a foreign country’s imports

Ex. Tariffs, quotas, subsidies, and technical regulations

Tariffs

Most common protectionist policy; taxes on foreign imports that make them more expensive to domestic consumers (pricier for consumers so they are more inclined to buy domestically)

Quotas

limits imposed on the number of imports into a domestic market during a given period of time; more restrictive than tariffs

Subsidies

government financial aid designed to help domestic exports and limit foreign imports

Technical Regulations

Rules imposed on the features of a product, such as size, shape, performance, or labelling

Imposed on imports

Import Substitution Industrialization (ISI)

A trade policy based on tariffs, import quotas, subsidies, and regulations to replace foreign imports with domestic production helps a country develop their own manufacturing base

The WTO

the primary international organization that regulates and facilitates rules-based global trade between nations

Trade Rules

Primary Agreements:

• Nondiscrimination, Most Favored Nation (MFN), National Treatment Policy (NTP)

Secondary Agreements:

• Trade-Related Aspects of Intellectual Property Rights (TRIPS), Agreement on Agriculture (AoA)

Non-Discrimination

WTO trade policy stipulating that members must treat other members equally in international trade; Cannot impose one trade rule on one country without doing it the same way to another country

Most Favored Nation (MFN)

a member country must grant the same trade concessions on a commodity granted to one member country to all member countries’ “like” commodities; must apply all tariff rules equally

Ex. US offers Canada a tariff rate of $1.00 USD on imported Canadian maple syrup; under MFN, US must offer all member countries a tariff rate of $1.00 USD on all imported maple syrup

National Treatment Policy (NTP)

A member country must grant the same tax concessions on a domestic commodity to a “like” foreign commodity from a member country

Ex. US lowers domestic tax on US cigarettes to 2%; under NTP, US must lower tax on all imported cigarettes to 2% as well

Trade-Related Aspects of Intellectual Property Rights (TRIPS)

An international agreement that establishes minimum standards for the legal protection of copyrights (works of authorship) and patents (technological inventions) among WTO members

US is largest consumer of intellectual property; Global South is the largest consumer

Covid and TRIPS

Under Covid: many countries asked WTO to waive intellectual property rights for covid vaccines because some countries could not afford intellectual property rights; refused though later released a provisional license — many died as result

Agreement on Agriculture (AoA)

establishes the reduction of WTO member countries’ domestic subsidies for specific agricultural products, agricultural infrastructure, and agricultural research

US allowed to subsidize their businesses, but not Global South

Dispute Settlement Process WTO

1. Appellate Body Review: body of judges (appointed by the US) who rule on issues

2. Automatic Adoption: rulings are final; to reject a decision every country must vote against it

3. Reasonable Time Period: countries must adopt rulings within a reasonable time period or face retaliation

4. Retaliation: if a country does not comply, then winning countries can implement trade restrictions or punishments on them

Ongoing Disputes

Trade conflicts between core member countries that continue for decades without immediate resolution

Trade Dumping

the exporting of a commodity at a price that is lower in the foreign market than the price charged in the exporter's domestic market; allows them to remove competitors and later raise prices

Ex. Starbucks will sell their coffee at a significantly lower price than a smaller coffee business until the small business cannot compete and they close, allowing Starbucks to then hugely up their prices 

Security Exception

A special WTO provision that allows a member country to restrict trade in the interests of its national security