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50 Cards in this Set
- Front
- Back
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World GDP today is ....
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nearly nine times greater than it was at the end of World War II
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SInce 1950 world trade has ....
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World trade has increased to more than 28 times
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US imports in 1950 in comparison to today
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1950 4% of annual GDP today they account for more than 17%
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We can understand gains from trade among nations by..
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understanding output gains from specialization between individuals.
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Comparative Advantage
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The ability to produce a good or service at a lower opportunity cost compared with producers
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Countries will _____ in activities with which they experience a lower ______. In other words they will specialize in the activity in which they have a __________
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specialize
opportunity cost comparative advantage |
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Specialization is the key
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Specializing in producing goods for which a nation has a comparative advantage allows for greater efficiency.
Production capabilities increase, making possible greater worldwide consumption through international trade. |
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Observations on specialization and trade
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Not everyone gains from trade.
Cannot “run out of exports” Every country will always have a comparative advantage in something. |
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Other benefits from international trade: the transmission of ideas
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New goods, services spread
New processes transmitted Intellectual property introduced |
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In the long run, imports are paid for by ...
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exports
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Any restrictions on imports ultimately reduce ...
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exports
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When a country engages in trade, it is not competing against the other countries.
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All nations stand to benefit from trade.
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International Competitiveness: Is the United States falling behind?
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The United States leads in overall productive efficiency
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Reasons the US leads in overall productive efficiency
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Widespread entrepreneurship
Economic restructuring Investment in information-technology Sophisticated financial system Large investments in scientific research |
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Infant Industry Argument
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The contention that tariffs should be imposed to protect from import competition an industry that is trying to get started
Presumably, after the industry becomes technologically efficient, the tariff can be lifted. |
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Arguments Against Free Trade: Dumping
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Selling a good or a service abroad below the price charged in the home market or at a price below its cost of production
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Arguments Against Free Trade: Protecting domestic jobs
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Gould/Woodbridge/Ruffin study – no casual link between the rate of imports and unemployment.
In half of the cases studied, when imports rose, unemployment fell. |
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The cost of protecting U.S. jobs
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Restrictions on textiles and apparel goods cost U.S. consumers $9 billion a year.
Cost $50,000 a year for each $20,000 job saved Restriction on imports of Japanese cars Cost $160,000 per year for each job saved in the auto industry Glass industry restrictions Cost $200,000 per year per job saved Steel industry restrictions Cost $750,000 per year per job saved |
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Arguments Against Free Trade : Emerging arguments against free trade
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Environmental concerns
Genetic engineering New diseases |
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Arguments Against Free Trade : National defense
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Exports of new technology
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Ways to Restrict Foreign Trade: Quota System
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A government-imposed restriction on the quantity of a specific good that another country is allowed to sell in the United States
In other words, quotas are restrictions on imports, usually applied to one or several specific countries. |
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Ways to Restrict Foreign Trade: Voluntary quotas
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Voluntary Restraint Agreement (VRA)
An official agreement with another country that “voluntarily” restricts the quantity of its exports Voluntary Import Expansion (VIE) An official agreement with another country in which it agrees to import more from the United States |
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Ways to Restrict Foreign Trade: Tariffs
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Tax on imported goods
Benefits import-competing industries Harms consumers by raising prices |
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Tariffs in the United States
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Have varied widely on imported goods
Highest rates in twentieth century occurred with passage of Smoot-Hawley Tariff in 1930 The Trade Expansion Act of 1962 gave the president the authority to reduce tariffs by up to 50%. The Trade Reform Act (1974) allowed further reductions. The Trade and Tariff Act (1984) resulted in the lowest tariff rates ever. |
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Ways to Restrict Foreign Trade: Quota System
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A government-imposed restriction on the quantity of a specific good that another country is allowed to sell in the United States
In other words, quotas are restrictions on imports, usually applied to one or several specific countries. |
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the General Agreement on Tariffs and Trade (GATT)
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An international agreement established in 1947 to further world trade by reducing barriers and tariffs.
The GATT was replaced by the World Trade Organization in 1995. |
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Ways to Restrict Foreign Trade: Voluntary quotas
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Voluntary Restraint Agreement (VRA)
An official agreement with another country that “voluntarily” restricts the quantity of its exports Voluntary Import Expansion (VIE) An official agreement with another country in which it agrees to import more from the United States |
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Ways to Restrict Foreign Trade: Tariffs
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Tax on imported goods
Benefits import-competing industries Harms consumers by raising prices |
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Tariffs in the United States
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Have varied widely on imported goods
Highest rates in twentieth century occurred with passage of Smoot-Hawley Tariff in 1930 The Trade Expansion Act of 1962 gave the president the authority to reduce tariffs by up to 50%. The Trade Reform Act (1974) allowed further reductions. The Trade and Tariff Act (1984) resulted in the lowest tariff rates ever. |
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the General Agreement on Tariffs and Trade (GATT)
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An international agreement established in 1947 to further world trade by reducing barriers and tariffs.
The GATT was replaced by the World Trade Organization in 1995. |
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General Agreement on Tariffs and Trade
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An international agreement established in 1947 to further world trade by reducing barriers and tariffs
GATT was replaced by the World Trade Organization in 1995. |
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The World Trade Organization (WTO)
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The successor organization to GATT that handles trade disputes among its member nations
Most important international trade organization, with largest membership Fostered most important and far-reaching global trade agreement covering Financial institutions; including banks, insurers and investment companies |
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Regional Trade Bloc
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A group of nations that grants members special privileges
Examples include the European Union, NAFTA, and the Association of Southeast Asian Nations |
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Some economists worry that regional blocs could lead to...
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a reduction in members’ trade with nations outside their blocs
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Trade Diversion
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the shifting of trade from countries outside a regional trade bloc to nations within a bloc
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Most evidence, however, indicates that regional trade blocs have...
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promoted trade instead of hindering it.
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Numerous studies have found that as countries from around the world have become more open to trade, they have tended to ...
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join regional trade blocs that promote even more openness
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The Trade Deflection Issue
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Today, the primary issue associated with regional trade blocs is trade deflection
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Trade Deflection
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occurs when a company located in a nation outside a regional trade bloc moves goods that are not quite fully assembled into a member country, completes assembly of the goods there, and then exports them to other nations in the bloc.
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To try to reduce incentives for trade deflection, regional trade agreements often include...
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rules of origin.
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Rules of origin
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Regulations carefully defining categories of products that are eligible for trading preferences under the agreements.
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A significant obstacle to international trade is ...
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increased costs of transporting exported items and delivering the items to the nations that import them
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One reason for the rise in shipping costs faced by exporting and importing firms has been that the world has..
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too few cargo ships to handle all the traded goods.
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Another factor pushing up global trade costs has been the...
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expansion of trade across Asia
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A key factor underlying the increase in global costs of using ships, overland trucking, and air transit to transport exported goods..
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is a rise in the demand for such services as nations have pursued gains from trade.
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Worldwide importance of international trade
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World trade has grown faster than total world GDP.
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Why nations can gain from specializing in production and engaging in trade
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Comparative advantage
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Arguments against free trade
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Infant industry
Dumping Environmental concerns National defense |
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Ways that nations restrict foreign trade
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Tariffs
Quotas |
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Key international agreements and organizations
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GATT
WTO More than 230 regional trade blocs NAFTA European Union |
