INTERNATIONAL TRADE

• Visible trade


  • Trade in goods, physical things you can touch and weigh:
  • Food and produce
  • Manufactured goods
  • Specialist goods
  • Raw materials
  • Electrical appliances
  • Machine tools
• Invisible trade


  • Trade in services like:
  • Tourism
  • Banking
  • Education
  • Government payments
  • Shipping
  • Civil aviation
  • Travel
• If a country exports more than it imports it has a trade surplus
• If a country imports more than it exports, it has a trade deficit
• TRADE SURPLUS ≠ TRADE GAP/deficit
• India bought wine from Spain = Visible export for Spain
• Indian student goes to Spain for studies = Invisible export for Spain
• Indian Insurance Company insures a Spanish ship = Visible exports for Germany
• UK car dealer buys German cars = Invisible import for Spain
• German tourist visits UK for holidays = Invisible export for UK
• UK resident uses German bank = Invisible exports for Germany
• BOT - BALANCE OF TRADE (trgovinska bilanca): the difference between the monetary value of a nation’s exports and imports over a certain period of time. It is used as a statistical tool to show the relative strength of a country’s economy compared to other economies and the flow of trade between countries
• BOP - BALANCE OF PAYMENTS is a statement that summarizes all economic transactions between the country’s individuals, companies, and government bodies with individuals, companies, and government bodies outside the country. It includes all visible and invisible transactions of a country. BALANCE OF TRADE makes part of the Balance of Payment
• Reasons for the increase in globalization:

  Technological reasons - ICT (Information and communication technology), The Internet, Transportation technology (containerization). The cost of communication and transportation has decreased dramatically.

  Political reasons - The decline of political barriers led to the liberalization of trade. Free flow of goods and services is guaranteed by the trade without restrictions.

  Economic reasons - Comparative cost principle, absolute advantage, comparative advantage
• Name a product/business where labor would be the comparative advantage for a poor country: China - sneakers
• Name a product/business where capital would be the comparative advantage for a rich country: US - medical research
• Name a product/business where natural resources would be the comparative advantage: Canada - timber
• Economic theories supporting FREE TRADE: Comparative advantage, New trade theory: economies of scale
• Trade blocs and Organizations

  • NAFTA - North American Free Trade Agreement with Mexico and Canada
  • GATT – General Agreement on Tariffs and Trade
  • WTO – World Trade Organization
  • IMF – International Monetary Fund
  • TTIP – Transatlantic Trade and Investment Partnership
• The World Trade Organization (WTO): Established in 1995 to promote free trade and prevent protectionism. The agreements negotiated and signed by the majority of the world’s trading nations guarantee member countries important rights
• The International Monetary Fund (IMF): Established in 1945, along with the World Bank to foster worldwide financial stability, facilitate international trade, and reduce poverty. It monitors economic and financial development, helps member countries with loans to overcome balance-of-payment difficulties, and provides technical assistance and training if requested
• A most-favored-nation (MFN) clause requires a country providing a trade concession to one trading partner to provide the same concession to all other WTO members
• Most-favored-nation (MFN) clause


  Requires a country providing a trade concession to one trading partner to extend the same treatment to all
• Protectionism refers to government policies that restrict international trade to help domestic industries
• Reasons for implementing protectionist policies

  • Protect infant industries
  • Protect declining industries
  • Protect strategic industries
  • Protect non-renewable resources
  • Deter unfair competition
  • Help the environment
  • For political reasons
• Trade barriers

  • Tariff barriers
  • Non-tariff barriers
• Tariff barriers


  • Tariffs
  • Import quotas
  • Embargo
  • Subsidies
• Non-tariff barriers

  • Import substitution
  • Safety norms
  • Customs difficulties and delays
• The comparative cost principle encourages countries to specialize in the production of the goods they can produce most cheaply
• Globalisation makes local economies integrate into a single global economy
• OPPOSITES

  -            Free trade – protectionism

  -            Developing country – developed / advanced country

  -            Import – export

  -            Competitive – uncompetitive

  -            Set / impose (barriers ) – lift / abolish (barriers)

  -            Developed industry – developing / infant industry
• Free trade vs. Protectionism

  -            Trade of goods and services without trade barriers

  -            International trade, the import and export without government restrictions

   

  -            Government restrictions are placed on the imports of foreign competitors (quotas, tarrifs, subsidies)

  -            The act of protection of domestic producers against foreign competition
• Taxes on imported goods

  Raise the price to customers and make them less attractive
• Tariffs


  Taxes on imported goods
• Quotas


  Limits on the quantity of a product that can be imported into a country
• Safety norms


  Laws and safety guidelines
• Customs difficulties and delays


  Making it difficult to arrange all certificates necessary to import into a country
• Import substitution


  When a country produces and protects goods that cost more than those made abroad
• Subsidies


  Money paid by a government to producers of certain goods to help them provide low-priced goods without loss to themselves
• Embargo


  A government order to stop trade with another country