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INTERNATIONAL TRADE UNIT 27 INTERNATIONAL TRADE the exchange (buying and selling) of goods and services between different countries imports - goods and services bought from abroad exports - goods and services sold to abroad HOW DOES THIS STATEMENT RELATE TO INTERNATIONAL TRADE? ‘Every time we buy a foreign car, we put someone else out of work.’ Woodrow Wyatt (1918-1998) British politician and writer Discuss these questions. Consider the clothes and shoes you’re wearing. Where were they made? Try to recall the meals you’ve eaten in the last 24 hours. How much of the food came from abroad? Which cosmetic products or toiletries that you have you used this week are imported? Where do your car (if you have one), television, laptop, mobile phone, watch and so on come from? Do you think products in your country are better than the products made in other countries? What are Croatia’s major trading partners? What are Croatia’s most important exports? Does Croatia try to restrict imports? Can you imagine living in a country that did not import anything, where only locally produced food and textiles and products were available? VISIBLE AND INVISIBLE TRADE, RB p. 51 I Study the chart and explain the difference between: PRIMARY / SECONDARY PRODUCTS VISIBLE / INVISIBLE TRADE BALANCE OF TRADE / BALANCE OF PAYMENTS VISIBLE TRADE – trade in goods R_______ Materials F_______ and Produce M_______ Goods VISIBLE TRADE S_______ Goods Exports E_______ Appliances + M_______ Tools Imports VISIBLE TRADE – trade in goods Raw Materials Foods and Produce Manufactured Goods Specialist Goods Electrical Appliances Machine Tools VISIBLE TRADE Exports + Imports INVISIBLE TRADE – trade in services Government P________ Specialist A________ S________ B________ T________ and tourism E________ Other S________ INVISIBLE TRADE Imports + Exports INVISIBLE TRADE – trade in services Government Payments Specialist Aviation Shipping Banking Travel and tourism Entertainment Other Services INVISIBLE TRADE Imports + Exports VISIBLE AND INVISIBLE TRADE FOOD FOR THOUGHT... 1 Can you add to the list of invisible exports or imports? 2 If you go abroad and buy music, clothes, books, eat in a restaurant, is it recorded as imports or exports for Croatia? 3 When foreign tourists come to Croatia, spend money in night clubs, shops, restaurants, buy food, or pay for a hotel room, is it imports or exports for Croatia? 4 If our transport companies ship foreign goods through Croatia, is it recorded as our exports or imports in the balance of payments? HOW MUCH DO YOU KNOW ABOUT INTERNATIONAL TRADE? trade in tangible goods trade in services (banking, tourism, and so on) the difference between a country’s total earnings from exports and its total expenditure on imports of goods and services direct exchange of goods without the use of money the (impossible) situation in which a country is completely self-sufficient and has no foreign trade the difference between the money that a country receives for its exports of goods and pays for its imports of goods HOW MUCH DO YOU KNOW ABOUT INTERNATIONAL TRADE? the situation where a country exports more than it imports (a positive balance of trade or payments) the situation where a country imports more than it exports (a negative balance of trade or payments) imposing trade barriers to restrict imports into a country taxes charged on imports quantitative limits on the import of particular products or commodities selling goods abroad at a lower price than in the home market, or even at (or below) cost price in order to obtain foreign exchange READING – PROTECTIONISM AND FREE TRADE – RB, pp. 45 & 46 1 COMPARATIVE COST PRINCIPLE 2 EXAMPLES 3, 4 PROTECTIONISM AND REASONS FOR PROTECTIONISM 5 TYPES OF TRADE BARRIERS 6 FREE TRADE: GATT AND WTO 7 OPPOSITION TO FREE TRADE 8 PROBLEMS OF DEVELOPING COUNTRIES (IMF) 9 FEARS OF DEVELOPING COUNTRIES READING – PROTECTIONISM AND FREE TRADE – RB, pp. 45 & 46 II Read the text and answer the following questions. Why do most economists oppose protectionism? Why do most governments impose tariffs and/or quotas? Why were many developing countries for a long time opposed to GATT? Why have many developing countries recently reduced protectionism and increased their international trade? III Do the TASK III, p. 47. ABSOLUTE AND COMPARATIVE ADVANTAGE Watch the videos and take notes to further clarify these two concepts. https://www.youtube.com/watch?v=5Crygjvy UPU INTERNATIONAL TRADE VOCABULARY ●AUTARKY ●BALANCE OF PAYMENTS ●BALANCE OF TRADE ●TRADE DEFICIT ● TRADE SURPLUS ●BARTER OR COUNTER-TRADE ●DUMPING ●PROTECTIONISM ●INVISIBLE TRADE ●QUOTAS ●TARIFFS ●TRADE ●BARRIERS ●COMMODITIES ●VISIBLE TRADE (GB) OR MERCHANDISE TRADE (US) ●COMPARATIVE COST PRINCIPLE ●COMPARATIVE ADVANTAGE ●DEREGULATION ●ABSOLUTE ADVANTAGE ●INFANT INDUSTRIES ●IMPORT SUBSTITUTION ●STRATEGIC INDUSTRIES ●SUBSIDIES READING – OH, SWEET REASON – RB, p 49 I Discuss the following questions. 1 What are subsidies? 2 How do sugar producers profit from receiving subsidies? 3 What do you know about the European Union's Common Agricultural Policy (CAP)? II Read the article and do the TASK II (True/False), p. 50. III Answer the following questions. 1 What does the EU do when it subsidizes sugar? 2 What are the main arguments against subsidies? 3 How are sugar subsidies a barrier to trade? 4 What do you think the WTO should do in the situation outlined in the article? 5 Which products does Croatia subsidize? SUMMARY – OH, SWEET REASON – RB, p. 50 1 ABSURDITIES OF AGRICULTURAL SUBSIDIES EU’s Common Agricultural Policy enriches a few farmers and refiners at the expense of the world’s poorest world’s 2nd exporter with the wrong climate cost of production: EU = 6 X Brazil!!! 2 GLOBAL IMPACTS subsidies – too much sugar- exports hurting other exporters LOSERS: hurting foreign farmers WINNERS: Brazil $ 500m the most efficient producers France $ 236m (Berghin Say) Thailand $151m in the world Germany $201m (Sudzucker) Mozambique $38m Britain $158m (Tate & Lyle) Ethiopia $ = AIDS programmes! - Doha negotiations depend also on the large EU companies INTERNATIONAL TRADE SUMMARY REASONS some products can only be produced in particular places (Scotch whisky in Scotland, guano, a natural fertiliser, only in a few places in South America), so people from other countries have to import them. some products are cheaper to produce in some countries than others (it is cheaper to import bananas from abroad than to grow them in expensive greenhouses) foreign firms may produce higher quality products at more competitive prices, so customers choose to buy from abroad INTERNATIONAL TRADE SUMMARY BENEFITS consumers benefit through increased choice and lower prices – this increases living standards efficient firms increase sales and profits by exporting their products – they gain economies of scale the economy can specialise in what it is best at (the UK-world leader in financial services; What about Croatia?) WTO – democratic organization INTERNATIONAL TRADE SUMMARY PROBLEMS it can be difficult for firms in one country to develop a particular industry when other countries with more experience of that industry are producing cheap exports overspecialisation can make the economy too dependent on imports and vulnerable if demand for the things it specialises in exporting falls PROTECTIONISM SUMMARY steps that governments take to restrict imports of products and protect domestic producers it is becoming more and more rare because of the membership of the EU and the World Trade Organization REASONS ways of raising revenue for the government (tariffs) protecting an infant industry (a new domestic industry which doesn’t yet have the economies of scale of foreign competitors) protecting strategic industries important for a country’s economy (a lot of jobs would be lost if the domestic firms closed down) protecting domestic producers from unfair foreign competition (some producers dump unsold products abroad – selling them at prices low enough to drive domestic producers out of business) RESTRICTIONS TO FREE TRADE SUMMARY INSERT THE RIGHT WORDS: SUBSIDIES – QUOTAS – EMBARGO – TARIFFS – EXCHANGE CONTROLS _____________ – physical limits on the quantity of a product that it can be imported during a year _____________ – taxes or customs duties imposed on imported goods to increase the price of foreign goods, making them less competitive _____________ - an outright ban on imports _____________ - restricting the availability of a foreign currency to importers thus restricting their ability to pay for imports _____________ - financial help given by the government to domestic producers, which helps them reduce their prices and so make imports less competitive, or to be sold at lower prices abroad (EU subsidies for agricultural products) RESTRICTIONS TO FREE TRADE SUMMARY INSERT THE RIGHT WORDS: QUOTAS – physical limits on the quantity of a product that it can be imported during a year TARIFFS – taxes or customs duties imposed on imported goods to increase the price of foreign goods, making them less competitive EMBARGO - an outright ban on imports EXCHANGE CONTROLS - restricting the availability of a foreign currency to importers thus restricting their ability to pay for imports SUBSIDIES - financial help given by the government to domestic producers, which helps them reduce their prices and so make imports less competitive, or to be sold at lower prices abroad (EU subsidies for agricultural products) GLOBALIZATION REASONS decline in trade barriers since WWII – the free flow of goods, services and capital technological change – dramatic developments in communications (computers,e-commerce), information processing and transportation (shipping the goods around the globe simpler and more economical) UNEVEN INTEGRATION INTO GLOBAL ECONOMY a few developing countries have increased their trade a lot and attracted foreign investment (China, Brazil, Argentina, India, Philippines) in some countries (Africa) trade has diminished, economic growth stagnant and income per head has fallen GLOBALIZATION ECONOMIES OF SCALE MORE INTERNATIONAL TRADE LEAD TO INTEGRATION IS CREATING A GLOBAL MARKET some industries (car, fewer and fewer trade barriers telecommunications) have result – the world as one big huge fixed costs market place very few firms can afford this – trend towards only the largest firms can mergers and alliances to afford the costs of marketing create a small number of very large firms which have on this scale – trend towards the resources to compete in fewer, larger firms a single global market GLOBALIZATION TECHNOLOGY IS MAKING GLOBAL COMMUNICATIONS POSSIBLE new information technologies – a single advertising campaign can reach a global audience consumers are starting to buy the same things all around the world some brand names are changing – firms start to use a single brand name that can be remembered and understood all over the world GLOBALIZATION NEW MARKETS ARE OPENING UP ALL AROUND THE WORLD in the last 25 years lots of countries have moved from being command economies to having market-based economies (Eastern Europe, Russia, even China) more opportunities for firms to sell into, but also more competition Western firms lose out in competition with the ‘tiger’ economies in South-East Asia, which now start to lose out to places like China, where labour is even cheaper GLOBALIZATION – GOOD OR BAD? large global firms can produce more efficiently and at a lower cost they become much more powerful than governments economic growth which globalisation brings will benefit everyone – more jobs some argue that it will benefit the rich at the expense of the poor and the environment DISCUSS ARGUMENTS IN FAVOUR/AGAINST FREE TRADE AND PROTECTIONISM. YOU MAY NEED THE FOLLOWING VOCABULARY: liberalise the economy reducing imports (quotas) – improve balance of payments increase profits for domestic producers and protect domestic jobs impose/lift trade barriers protect inefficient domestic producers and restrict efficient foreign competitors – higher prices for consumers WTO/IMF pressure protect strategic/ infant industries protect against dumping home-produced substitutes retaliate against restrictions imposed by other countries HOW DO THE FOLLOWING CARTOONS AND PICTURES COMMENT ON FREE TRADE AND PROTECTIONISM? HOMEWORK – ARGUMENTS IN FAVOUR OF AND AGAINST FREE TRADE - MK, pp. 134 & 135 WRITING TASK – Classify the statements at page 135: which are in favour of and which against free trade and the policies of the WTO? Then write a brief essay summarizing the most important arguments in favour of free trade, and those against. THE EUROPEAN UNION QUIZ Do the quiz and find out how much you know about the EU. LISTENING – SENTENCE COMPLETION – A BRIEF SUMMARY OF THE HISTORY OF EUROPEAN UNION ENLARGEMENT (2010) – RB, p. 55 Read the gapped text and think about what words and expressions might be missing. Then, fill in the gaps as you watch the video: http://www.youtube.com/watch?v=RE6QgoykLZU. Do the tasks II, III & IV, p. 56. READING – THE EUROPEAN UNION: CURRENT CHALLENGES AND FUTURE PROSPECTS – RB, pp. 52 & 53. I How much do you know about the EU? Let’s recap. How many members does it have? When did it begin? Why? How was it built? How is it governed? What characterizes trade inside it? What is the currency called? Where is it used? How can one travel in the Schengen area? II Match the headings with the paragraphs. □ Inherent differences among member states □ Rise of Anti-EU or “Euroskeptic” Political Parties □ Persistent tensions among member states □ Current challenges to the EU □ Overview Complete the sentences with the corresponding terms. A common market and a _____________ currency have made of Europe a world-competitive economic zone. He is a Eurosceptic and is strongly critical of European _____________. International _____________are usually negotiated by diplomats and then signed by national politicians. Some views occasionally seen as _____________ include perceptions of the EU being undemocratic or too bureaucratic. The European Economic Community eliminates trade barriers and creates a European _____________ market. The European Union _____________ is gradually opening labour markets and offering extended opportunities to recruit from abroad. The European Union is a _____________ _____________ and therefore sets a common external tariff. When talking about international relations, the word “nation” can refer to a country or _____________ state. What are the advantages and disadvantages of the EU? ADVANTAGES People support the EU because… DISADVANTAGES People are against the EU because… Case study – Work in groups. Oscania is a small island country off the coast of Europe. Its government is considering the idea of joining the EU, but before they begin accession negotiations, they would like to know if their country would benefit from becoming a member. What would be your answer? Give reasons. Relatively strong economy: GDP per capita: $33000 (In 2016, the EU’s was $37800, Croatia’s $ 22400.) Industry: growing banking sector, new but quickly growing automotive industry Population: 110,000 Unemployment: 5% (In 2016, the EU’s was 8,3%, Croatia’s 11,4%.) Only 20% of the country’s population (age 25 -65) has obtained a tertiary degree. There is only one university in the country. Case study – Work in groups. Start with a statement: “We think that Oscania should / should not join the EU.” Then give a reason (1) and an explanation (2) of that reason. For example: “(1) Oscania could reap economic gains from being part of the EU. (2) Its growing banking sector would benefit from being part of the European common market.” Make at least 3 points (reason + explanation)
