International Economics 05

Trade Policy

Instructor: Dr. Norbert Szabó, Pécsi KÖZGáz
- Context: This course material is designed for students starting their careers in economics and trade policy.

Next Week: Term paper during the seminar (B025).
Exam Format:
- Electronic exam.
- Students must have a fully charged laptop or tablet.
- Installation and testing of Respondus exam proctoring system is mandatory, following Moodle instructions.
- Types of questions will include:
- Short open-ended questions.
- Multiple-choice questions.
- Fill-in-the-blank questions.
Exam Objective:
- Apply knowledge, not rote recitation from the textbook.
- Sample questions are provided in Moodle.

Latest News:
- Hungary's Orban urges the EU to investigate Druzhba pipeline damage.
- February 28, 2026: News on Donald Trump's conflict with Iran.
- The U.S. and Israel initiated a campaign against Iran without considering future implications.
- Discussion on oil prices and the looming economic repercussions of the conflict.
- U.S.-Israel strikes have caused fears in oil markets about price hikes over $100 per barrel.
- Shipping operations have been suspended through the Strait of Hormuz, critical for global trade.

Trade Policy Instruments: Discussing the various tools used within trade policy.
Welfare Implications: Examining the effects of trade policy on welfare.
Political Economy of Trade Policy: Understanding the political dynamics influencing trade policies.
Free Trade vs Protectionism: Contrasting two fundamental trade ideologies.

Tariffs: Taxes imposed on imported goods.
- Example: Discussion on Trump's 25% tariff on steel imports aimed at counteracting Chinese dumping.

Context:
- Trump administration imposed tariffs raising concerns about retaliation from China and the EU.
- IMFs warnings about the detrimental impact of these tariffs on the U.S. economy.
- Major corporations considered facing tariff implications.

Context:
- Continued trade disputes led to discussions on who is actually bearing the costs of tariffs.
- The tariffs are noted to impact U.S. consumers adversely.
- Graphical representations of reciprocal tariffs among various nations, e.g., China (67%), EU (34%), Mexico (20%).

Trump's Trade Policies:
- New tariffs being enacted (up to 15%) amid international tensions, particularly focusing on the EU.
Impact: Domestic prices increase, affecting consumer welfare and prompting governmental revenue adjustments.

The relationship holds that import demand must equal export supply on a global scale.
Equations:
- ext{Home Demand} - ext{Home Supply} = ext{Foreign Supply} - ext{Foreign Demand}
- Market equilibrium signifies demand and supply balancing out on both local and global scales.

Positive Effects: Rising prices benefit domestic producers.
Negative Effects: Increased costs for domestic consumers and possible inflation.
Government Revenue: Government may benefit from tariffs as it collects revenue.

TOT defined as the ratio of prices of exports to imports.
- Implication: Improved terms lead to increased consumption opportunities, and deterioration results in losses.
Tariffs can potentially enhance a nation's terms of trade if it exercises enough clout in the market.

Voluntary Export Restraints: Imposed by importing countries to limit exports.
Local Content Requirements: Mandate domestic sourcing for certain production inputs.
Export Credit Subsidies: Government incentives to support exporters.
Government Procurement Policies: Regulations affecting tendering processes and quality standards.

Arguments for Free Trade:
- Resource allocation efficiency, economies of scale, and competitive innovation.
Arguments against Free Trade:
- Market failures, changes in terms of trade can be harmful, and potential collective action problems.
Collective Action: Debate on why group incentives often hinder the push for unified free trade policies despite individual benefit.

Tariffs can have vast implications on global price levels and domestic welfare, varying based on the country's size in the global economy.
While tariffs generally raise domestic prices aiding producers, they disadvantage consumers.
Structural arguments favoring free trade revolve around efficiency and innovation, whereas critiques hinge on local market failures and the complexities of collective advocacy against tariffs.