Free trade without barriers.
When trade is both voluntary and free, the buyers and sellers benefit from it
Since voluntary trade is mutually beneficial, it creates wealth
Wealth-is the collective value one owns
International trade.
when you trade with people in other countries the same result of mutual benefit and wealth creation occurs.
The General agreement on tariffs and trades(GATT), is a movement that was created by several countries and the goal was to reduce trade barriers so that the countries could engage in free trade.
Case against international trade.
Detractors of free international trade include,
- Environmentalists are concerned that as countries specialize production will concentrate in countries that have few regulations.
- Labor unions oppose free trade on the grounds that production will shift towards low wage countries that have little or no representation.
- Human rights activities often oppose free trade as production shifts towards countries where working conditions are miserable and inhuman.
- Politicians and their constituents are with loss of national sovereignty often oppose free trade agreements on the ground.
Trade barriers.
At times a might limit trade in order to accomplish these other interests.
The government might accomplish this by;
- Tariffs
- Quotas
- Embargoes
Tariffs.
It is a tax on trade.
They can be used to raise the governments revenue in order to benefit a certain segment of the economy
Downsides of tariffs include;
- Protective tariffs often have the effect of preventing competition and encouraging waste and efficiency
- Revenue tariffs often fail to raise tax revenue because people stop buying the now expensive imports
- Export tariffs might give producers an incentive not to produce
Quotas.
Quotas are limits on trade
Instead a tax on imports, you might use a quota to limit the number of goods been imported into your country.
Price-the momentary amount for which consumers and producers buy and sell some quantity of a good or a service.
Problems created by quotas include;
- They do not generate tax revenue for the government.
- They provide an incentive to smuggle goods illegally thus creating black markets.
- In addition, they may be manipulated by foreign firms to limit competition from other foreign firms.
Embargoes.
It is a ban on trade with another country.
The main purpose of an embargo is usually to punish a country for some offence either committed.
For example, the embargo on America against Cuba
Revision.
International Trade
The exchange of goods and services among businesses in various countries
- multinational corporations
- international business companies
Also involves imports and exports
- a country will have few partner countries with whom they do the majority of their importing and exporting
Imports
The items transported into a country from a foreign country
In the United States, this includes:
- industrial supplies (i.e. crude oil)
- capital goods (i.e. computers and agricultural products)
- consumer goods (i.e. automobiles, clothing, furniture)
Exports
The items transported out of a country to a foreign country
In the United States, this includes:
- electronic equipment
- aircraft and spacecraft
- pharmaceuticals
- organic chemicals
Balance of Trade
Trade dependency is when a country relies heavily on exports. This can result in a negative impact on the country’s economy when exporting decreases
Trade deficit: if a country’s import exceeds its exports the trade balance will be negative. A negative trade balance equals a deficit.
Free Trade
A policy in which there is no government regulation and countries may trade as they please
Does not involve trade barriers or tariffs placed on imports or exports
Tariff: taxed set in imported goods
Free Trade Zones
Specified areas where materials and finished goods may be landed, stored, displayed, assembled, reconfigured and re-exported into customs territory and foreign points free of customs duties — also called foreign-trade zones or free trade zones
Antitrust Laws
Legislation preventing exclusive possession or control of the supply or trade in a product or service — with the intention of promoting fair competition and encouraging the production of quality goods and services at the lowest price
Primary goal of safeguarding public welfare by ensuring consumer demands are met by the manufacturer as well as the sale of goods
Sherman Act:
- the original, principle and foremost antitrust statue in the United States
- passed in 1890, this law prohibits businesses from restraining free trade and prevents monopolies from forming in the market
Tariffs
Revenue
- increases government funds
Ad valorem
- percentage of the value of the import
Specific
- quantitative as far as the amount of goods rather than the value of the goods (Ex: the number of goods and/or the weight of goods)
Embargoes
An absolute ban on imports or exports in a certain country
Not as common as other types of Trade barriers
Usually enacted for political reasons or as a form of protest against another country
U.S. placed an embargo on Cuba after the Cuban missile crisis
Quotas
Regulations limiting the amount of imports being sold in a certain country — can be regulated during a specific time frame
Used to maintain and manipulate prices — supply and demand
Standards
Laws which recognize health and safety requirements on imported goods
Generally used on domestically produced products to ensure safe consumption
Subsidies
Payments made by the government and given to producers
Allows producers to be a contender with competitiors by minimizing financial burdens — intended to be temporary
Exchange Control
Method which intervenes on trade to keep payments balanced and control the currency rate
Objectives:
- protecting domestic industries
- maintaining consistent rates
- restoring balance of payments
Fixed exchange rate
- countries maintain their currencies at a fixed rate and only change the value when an economic situation occurs
Flexible exchange rate
- rates are determined freely and the rate will fluctuate day to day
Protectionism
Imposes extra costs on imports in order to protect local businesses — helps to keep businesses from losing jobs
Offsets advantages countries have, such as low wages
International Trade Agreements
Contractual arrangements between and among countries concerning their trade relationships
State conditions for trade among member countries — policies on tariffs and other trade barriers
Bilateral Trade Agreements
Involves an agreement between two nations — for example Canada-European Free Trade Association (EFTA)
Multilateral Trade Agreements
Involves more than two nations who have similar interests — for example General Agreement on Tariffs and Trade (GATT)
Regional Trade Agreements
Involves mutual trade agreements among two or more partners within the regional trade bloc — for example, North American Free Trade Agreement (NAFTA)
Trade bloc: provides defense for a group of countries within a region against tariffs and other trade barriers
Canada-European Free Trade Association
A free trade agreement among Canada and the EFTA countries:
- Iceland
- Liechtenstein
- Norway
- Switzerland
General Agreement on Tariffs & Trade
An agreement which provides the following for goods, services and property:
- fair trade rules
- reduction on tariffs
- duties
- other trade barriers
Also provides rules for much of world trade
Dumping
When a producer sells a product below the sale price of their home market — products are sold at a lower cost than production to do away with surplus items
Surplus: excess, greater amount than necessary
North American Free Trade Agreement
Trade agreement with sets rules for trade and investment among the following countries:
- United States
- Canada
- Mexico
Considered to be one of the world’s largest free-trade zones
North American Free Trade Agreement (Pt. II)
Created in 1994 and has removed most tariff and non-tariff barriers to free trade between the NAFTA countries
Has worked to:
- increase trade and investment
- provide strong economic growth
- create jobs
- generate better prices for consumer goods
Objectives
To examine trade barriers such as tariffs and the reason they exist
To explore the international trade market
To identify organizations and governmental regulations concerning trade
To analyze free trade zones locally, statewide and internationally as well as determine their ASEAN
This is a political and economic organization of 10 countries in Southeast Asia to improve economic growth.
Embargo
This is the process of prohibiting commerce and trade with another country. This is often done to affect the country to change an internal policy.
European Union
This is a political and economic group that was formed in 1992 to encourage cooperation between the 27 member states.
Export
This is any good transported from one country to another.
Free Trade
This is the practice of goods being traded between countries without any (or with reduced) tariffs that might slow down trade.
Imports
These are goods that are brought into one country from another.
NAFTA
This is an agreement signed in 1992 and put into effect in 1994 was created to reduce tariffs between the United States, Canada, and Mexico
Protective Tariff
This is a tax on imported goods designed to prevent domestic companies from having to compete with foreign goods of lower price or superior quality.
Quota
This is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.
Sanction
This is the name for a category of trade barriers that a country may impose on another country or countries.
Subsidy
This is financial assistance from the government to encourage the production of or the purchase of a good.
Tariff
This is a tax on imported goods and is usually designed to protect domestic production of similar goods.
Trade
This is general name for the voluntary exchange of goods and or services.
Trade Barrier
This is a restriction to regulate international commerce and business.
Unfavorable Balance Of Trade
This is a situation that exists when a country imports more than it exports.
