International Trade: Gains, Limits, and Arguments

1. 11. International Trade

2. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage

3. Production possibilities for two countries

4. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage • The limits to specialisation and trade

5. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage • The limits to specialisation and trade • The terms of trade

6. The Gains from Trade • The law of comparative advantage • specialisation as the basis for trade • absolute advantage • comparative advantage • the gains from trade based on comparative advantage • The limits to specialisation and trade • The terms of trade • PX/PM

7. The Gains from Trade • Other reasons for gains from trade • decreasing costs • differences in demand • increased competition • trade as an ‘engine of growth’ • non-economic advantages

8. Arguments for Restricting Trade • Methods of restricting trade • tariffs • quotas • administrative barriers • other • Arguments for restricting trade • infant industry argument • changing comparative advantage • to prevent dumping

9. Arguments for Restricting Trade • Arguments for restricting trade (cont.) • to prevent establishment of a foreign-based monopoly • to spread risks • externalities • pursuing national interests (but against world interests) • exploiting monopoly power • protecting declining industries • non-economic arguments

10. Arguments for Restricting Trade • Problems with protection • protection as ‘second best’ • world multiplier effects • retaliation • cushions inefficiency • bureaucracy

11. World Attitudes towardsTrade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade

12. Growth in real GDP and in real exports of goodsand services: total OECD countries

13. Growth in real GDP and in real exports of goodsand services: total OECD countries Growth in GDP

14. Growth in real GDP and in real exports of goodsand services: total OECD countries Growth in GDP

15. Growth in real GDP and in real exports of goodsand services: total OECD countries Growth in exports of goods and services Growth in GDP

16. Growth in real GDP and in real exports of goodsand services: total OECD countries Growth in exports of goods and services Growth in GDP

17. World Attitudes towardsTrade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade • Re-emergence of protectionism in the 1980s

18. World Attitudes towardsTrade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade • Re-emergence of protectionism in the 1980s • the use of non-tariff barriers

19. World Attitudes towardsTrade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade • Re-emergence of protectionism in the 1980s • the use of non-tariff barriers • The Uruguay Round

20. World Attitudes towardsTrade and Protection • History of protection • Pre-war growth in protection • Post-war reduction in protection and the role of GATT • the growth in world trade • Re-emergence of protectionism in the 1980s • the use of non-tariff barriers • The Uruguay Round • aims of the Uruguay round negotiations

21. World Attitudes towardsTrade and Protection • The Uruguay Round settlement and the creation of the WTO • problems in reaching agreement • the agreement • the work of the WTO • dispute settlement • conflicting interests in trade disputes • efficiency in trade versus environmental and social interests • international protests

22. Trading Blocs • Types of preferential trading arrangement • free trade areas • customs unions • common markets • features of a full common market • Direct effects of a customs union • trade creation • trade diversion

23. Trading Blocs • Long-term effects of a customs union • longer-term advantages • internal economies of scale • external economies of scale • better terms of trade • increased competition between members • longer-term disadvantages • certain regions of the union may suffer • possibility of oligopolistic collusion • administrative costs

24. Trading Blocs • Preferential trading in practice • the EU • NAFTA • differences between the EU and NAFTA • other examples

25. The European Union • Historical background • From customs union to common market • Common Agricultural Policy • regional policy • competition policy • tax harmonisation • social policy

26. The European Union • The single market • historical background • the Single European Act • completing the single market • benefits of the single market • trade creation • reduction in the direct costs of barriers • economies of scale • greater competition

27. The European Union • The single market (cont.) • criticisms of the single market • radical economic change is costly • adverse regional multiplier effects • development of monopoly/oligopoly power • trade diversion • evidence • the future of the EU • effect of new members

28. Trade and Developing Countries • Trade strategies • primary outward looking • secondary inward looking • import-substituting industrialisation (ISI) • secondary outward looking • possibly complemented by primary inward looking

29. Trade and Developing Countries • Approach 1: exporting primaries • justification for exporting primaries • exploits comparative advantage • a 'vent for surplus' • an 'engine for growth' • problems with traditional trade theory • comparative costs change over time • benefits may not flow to nationals • trade my lead to greater inequality • externalities from mines and plantations

30. Trade and Developing Countries • Exporting primaries (cont.) • long-term problems for primary exporting countries • low income elasticity of demand • protection in advanced countries • technological developments • synthetic substitutes • miniaturisation • rapid growth in imports • adverse movements in terms of trade

31. Trade and Developing Countries • Approach 2: ISI • justifications • problems of primary exporting • dynamic potential in manufacturing • infant industries • rapid technological advance • patterns of protection • selecting industries for protection • tariff and quota escalation • attracting multinational investment

32. Trade and Developing Countries • Approach 2: ISI (cont.) • adverse effects of ISI • often counter to comparative advantage • tends to cushion inefficiency • encourages establishment of monopolies • artificially low interest rates • use of capital-intensive techniques • encourages rural–urban migration • adverse effects on rural sector • leads to greater inequality • environmental problems • limit to home market

33. Trade and Developing Countries • Approach 3: exporting manufactures • transition from inward-looking to outward-looking industrialisation • a neutral trade approach • active promotion of manufactured exports • benefits from exporting manufactures • conforms with comparative advantage • increased competition • increased investment • more employment and greater equality • faster growth

34. Growth rates and export performance of selected secondary outward-looking countries

35. Trade and Developing Countries • Approach 3: exporting manufactures (cont.) • drawbacks of exporting manufactures • possible retaliation from advanced countries • but attitudes of WTO • competition from other developing countries • vulnerability to world fluctuations • world recessions • speculation • trade between developing countries • trade blocs of developing countries