INTERNATIONAL TRADE

MK, UNIT 27

RB, p.20-25

INTERNATIONAL TRADE

Lead-in

(Key concepts, vocabulary SB p. 132, RB p. 20)Reading

(RB, p. 20, 21)Listening

(Mk, p. 132, 133)Discussion

(MK, p.134, 135)Additional reading

Balance of Trade and Balance of Payments (RB, p. 22)

Sugar subsidies (Oh Sweet Reason, RB, p. 23)

CROATIA’S IMPORTS OR EXPORTS?

transport equipment, machinery, textiles, chemicals, foodstuffs, fuels

Bosnia and Herzegovina

Germany Slovenia Austria Serbia Italy

machinery, transport and electrical equipment; chemicals, fuels and lubricants; foodstuffs

Italy Germany Russia China Slovenia Austria

HOW MUCH DO YOU ALREADY KNOW?

Why do some people say that free trade is not fair trade?

Which measures can governments impose to protect the national economy from competing foreign products?

Which countries have trade deficit/surplus?

What is autarky? What are dumping prices?

What happens in a typical barter?

What does comparative cost principle propose?

What does a balance of payments include?

What is exchanged in (in)visible trade?

How can governments liberalize imports?

What is the purpose of WTO agreements?

What is the purpose of IMF?

Key concepts

Free trade ProtectionismTrade barriersTariffsQuotasSubsidiesExports/ImportsAutarkyDumpingBarter

Absolute advantageComparative advantageInfant industryStrategic industryTrade surplusTrade deficitBalance of tradeBalance of payments(In)visible trade SB p. 132, RB p. 20

FREE TRADE PROTECTIONISM

international trading without government interference

trade of goods without trade barriers

policy of protecting domestic industries against foreign competition

restrictions placed on the imports of foreign competitors by means of: tariffs, subsidies, import quotas, non-tariff barriers, embargo etc.

FREE TRADE or PROTECTIONISM?

It protects jobs (votes).It allows specialization. It strengthens

absolute/comparative advantage.

It strengthens political interest.

It provides access to more markets.

It prevents dumping.It fosters efficient

market mechanism.

It protects domestic industries (esp. strategic / infant industries).

It allows freer movement of resources.

It adds costs to consumers.

It protects national culture.

It increases international competition and efficiency.

COMPARATIVE COST

A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor.

Countries should specialize in the goods they can produce most efficiently.

Source: Investopedia

http://www.youtube.com/watch?v=Vvfzaq72wd0

EXAMPLE (http://www.econlib.org/library/Enc/FreeTrade.html)

Some lawyers are better typists than their secretaries. Should such a lawyer fire his secretary and do his own typing? Not likely. Though the lawyer may be better than the secretary at both arguing cases and typing, he will fare better by concentrating his energies on the practice of law and leaving the typing to a secretary. Such specialization not only makes the economy more efficient but also gives both lawyer and secretary productive work to do.

WTO & IMF

international organization which deals with the rules of trade between nations to help producers of goods and services, exporters and importers conduct their business

organization which tries to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

READING RB P.20, 21

PROTECTIONISM AND FREE TRADE

THE COMPARATIVE COST PRINCIPLE

REASONS FOR COMPARATIVE/ABSOLUTE ADVANTAGE

EXAMPLES

PROTECTIONISM (POLITICAL REASONS)

TYPES OF TRADE BARRIERS (QUOTAS V. TARIFFS)

FREE TRADE: GATT AND WTO

OPPOSITION TO FREE TRADE

PROBLEMS OF DEVELOPING COUNTRIES (IMF)

TRADING BLOCKS

Comprehension tasks: II (p.20), III (p.21)

TEXT SUMMARY: WHICH VERB IS MISSING?

The comparative cost principle proposes that

countries will r_______ the living standard if they s_______ in the production of the goods and services in which they are efficient.

Politicians p______ strategic industries because if we a_______ all sectors in which we don’t have a comparative advantage, this might l_______ to structural unemployment.

Governments i_________ tariffs to d________ or w________ competitors, and r________ against restrictions imposed by other countries.

Infant industries are protected until they a_________ economies of scale.

Tariffs p______ revenue for the government.

Developing countries wanted to c______ a fall in commodity prices so they started to p_______ import substitution.

Developing countries have debts because they can’t p_____ the interest, let alone r______ the principal, so they have to r______ (renew) a loan, or r _________ (postpone) repayments.

Still, for fear of being excluded from international trade, third world countries have to l_______ their economies and l_______ trade barriers.

Listening (MK, p. 132, 133)

Discussion (MK, p.134, 135)

DISCUSSFREE TRADE AND … SB. P. 135

peace and stabilitysize of markets available to exporterspricespolitical and cultural barriers economic growthinfant industries in developing countriespollution/environment labour standards

FREE TRADE…

promotes guaranteesguarantees breaks down fostersprohibits pollutesallows favours

FREE TRADE SB. P. 135

promotes peace and stability

guarantees producers (exporters) bigger markets

guarantees consumers the lowest prices

breaks down barriers bretween nations

fosters economic growth

prohibits developing countries from protecting their infant industries

pollutes the environment bcs of increased transport of goods

allows rich countries to dump subsidized, industrially produced food in poor countries

favours commercial values (not labour and environmental issues)

READING OH, SWEET REASON (RB p 23)

TRUE OR FALSE?

1. Sugar is produced from sugarcane only.

2. The production of sugar in the EU is more efficient than production in Brasil.

3. The EU subsidizes European sugar producers.

4. European sugar is exported to developing countries.

5. It is economically justified to buy sugar from the most efficient producers.