International Trade Notes
International Trade Notes FMIB3
Hult International Business School
Popular in Global Economics
Popular in International Business
This 3 page Class Notes was uploaded by Mischa Rapt on Tuesday September 22, 2015. The Class Notes belongs to FMIB3 at Hult International Business School taught by David Green in Summer 2015. Since its upload, it has received 9 views. For similar materials see Global Economics in International Business at Hult International Business School.
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Date Created: 09/22/15
International Trade the exchange of goods and services between people or rms in different nanns Gains from trade Wider range of goods or services for consumption expanded market for sales improvements in income production or satisfaction owing to the exchange of goods or services Losses from trade for those who cannot compete in a wider more competitive market Gains often diffuse spreadout losses concentrated Everybody has comparative advantage in somethingEverybody can nd some specialization Global economy becoming more trade intensive Technology has been contributing to falling trade costs 0 World economy has expanded by Russia china and other countries that formerly did not trade heavily with other countries 0 More trade friendly policies 0 Policy regimes have become more trade supportive world wide trend is for lower tariffs Logistics indexbigger the better re ects on falling trade costs Often unappreciated especially when logistics fail dependant Borders can be barriers governance and coordination as an issue time consuming procedures uncertain costsack of logisticsinadequate facilities Need both hard physical infrastructure and softrules and regulations governing use of infrastructure policies to encourage logistics customs immigrations securitystandardsetc Trade policy overlaps with industrial policy industrial policy is govt efforts to promote speci c rmsindustries or sectors poicies include subsidies loans exceptions from taxes or trade restrictions support for land use Japanese Industrial Policy successfu user of industrial policy with problems shielding domestic producers and inef cient industriesfood and agriculture encourages corruption govt picks quotwinnersquot subsidies hard to eliminate distorting economic incentives heped build world class high technology industries Every country practices industrial policy to some extent China Replaced Japan as a successful example state owned enterprises have been important to growth local govts have sponsored many businesses but can they avoid the trap of shielding inef cient industries US practices industrial policy in a more limited fashion support research activities that lead to business developmentinternet dept of energy support for 39green39 energy technology bail outs of automobile and nancial rms if systemic risks appear involved Impact of trade Increases demand factor for something abundant in country and decreases demand for what is scarce Factor price equalization if country is selling labor intensive product to another country wage increases in the country with lots of labor and drops in the country with less labor Losers are easily identi ed trade losses are more concentrated makes for political power Winners are exporters but often consumers rms getting cheaper inputsoften spread out over econmy potential winners are weak politically lf Factors of production can move across borders evenly and more countries become more integrated through trade factor prices wages cost of capital tend to become equal e Chinese US trade Chinese assembly workers see more demand increased wages whereas US assembly workers see decreased pay US nancial rms see more demand higher salaries chinese nancial rms see smaller market Opening country to trade can destroy earlier monopoly pro ts Absolute advantage a country more ef cient at producing a good in comparison to another person or country Opportunity cost for one product over the other Comparative advantage country can produce a good at lower opportunity cost than another personcountry Trade allows each country to specialize and produce what they are more ef cient at and trading for goods they are less ef cient at Trade gains come from specialization gains are also dependant on price gains also come from expansion of scale Issues on trade losses are more visible than gains job of the economist to point out the gains Price would be somewhere between price each country would set without trade PPF curve if its curved you do not get complete specialization each country could produce some of each goodstraight Line PPF suggests all workers are equally ef cient Comparative advantage came from nature originally modern trade theory recognize relative amount of resources some countries are more labor intensivendonesia and some have abundant resources to invest in capital US steel production could be sited there Short run vs long run static vs dynamic china exhausting former comparative advantage of low labor cost Saudi arabia long term adavantage in oil production Revealed vs hidden reveaedwhat can be seen from trade data and hidden what needs policy or techonology changes Intermediate goodsinputs into production systems global production sharing WTO refers as 39trade in tasks39 international division of labor world trade has grown in production sharingdevelopment of global value chains ie lphone Boeing planes Production Sharinghighly competitive and not determined by 39natural afvantages39 determinants of 39who wins39 production sharing investments Trade is popular with economists not everyone else non competitive producers lose National securityhuge distortion in agricultural subsidies Price determines who ben ts on traded goods not necessarily advantageous to all especially if a country buys imports cheaply and sells imports dearly some countries impose taxes on imports to even playing eld Health concerns meat products with growth hormonesGMO Protectionism Eu restricts certain agricultural products from US citing health concerns Comparative advantage can be a trap as it may exhaust your resources specializing in some sectors may lead to dynamic bene ts Infant industry arguments protecting domestic industries could allow 39infant39 industries to grow and become competitive arguments against trade to protect weak domestic industries govts notoriously bad at picking quotwinnersquot inef cient trade subsidies quotWhite Elephantsquot industrial policy investments can bankrupt country ie Malaysias promotion of domestic car Proton WTOlnternational organization to open countries to more trade The more exible to economy the less the painlosers and bigger the gainretrain workers lower costs of starting and exiting sectors support rampd to promote business productivity Macro inconsistencysome govts encourage more exports that imports but this means another country would have to have more imports than exports Every country has taken steps to preserve domestic industries