Download Economic Issues affecting international trade

Economic Issues affecting
international trade
Unit 22
Objectives

Appreciate the extremes of income
distribution internationally

To understand the effect of import
protection and export subsidy on
businesses
Income Distribution around the
World

The Worlds income is not distributed
evenly.

Put the following list of countries in to
order – the most rich first,
United States, Morocco, United Kingdom,
India, Brazil, South Korea, Ethiopia,
Nigeria, Spain, Russian Federation, China,
India
The Answer
Income Distribution around the
World
In the US in 2007, the average income
per person was $47,850, approx £30,000.
 Per person means ‘per head’ – including
babies and old people – not just people
working.
 In contrast, in Ethiopia the average
income per person is $780, approx £600.
 The average in the UK is $34,370, not as
high as the US but 44 times greater than
Ethiopia!!

Income Distribution around the
World
The graph can also be used to show the
developed countries and the
developing countries.
 High income countries are also called
the developed countries.
 Low income countries are also called the
developing countries.
 54% of the worlds population live in
MIDDLE income countries, 20% in LOW
income countries and 16% in High
income countries.

20%
54%
16%
Income, Wages, Products and
Trade

The level of development of an economy
affects its imports (what it buys from
abroad) and its exports (what it sells
abroad).
What affects this?.....
 Average income,
 Wages and prices
 Quality and technology of products

Average income



Average incomes are 5 times higher in
developed countries that in developing
countries.
This helps to explain why high income
countries like the US & UK spend more on
imports than low income countries.
In the UK because of the high average
income we buy products from around the
world, clothes from China, toys from India,
take holidays in Spain or the Caribean
Average income
The average person in Ethiopia buys
hardly any products made outside the
country, let along go on holiday to other
places!
 For UK businesses this means that they
are more likely to sell their products to
Europe or North America than to
customers in developing countries such as
India or China

Wages and Prices
UK businesses and consumers can take
advantage of the low wages paid to
workers in developing countries.
 Many products like clothing are now made
mainly in developing countries .
 Companies like Primark or Tesco offer low
prices on clothing because they buy from
suppliers in developing countries.
 Developing countries are a source of
cheep imports for rich developing
countries.

Quality and technology of
products





Price is only one factor that persuades
customers to buy a product.
The quality and technology of a product is
also important.
Many products made in developing countries
are too poorly made and not sufficiently
technologically advanced to be sold to
customers in developed countries.
So businesses in developed countries tend to
sell high price, high quality goods to
developing countries.
Businesses in developing countries will sell
lower quality less technologically advanced
but cheaper products to developed countries
Import Protection and Export
Subsidy
Nearly every country in the world
operates a protectionist policy.
 These are measures designed to reduce
the number of imports coming in to a
country and in doing so give an
advantage to domestic firms, not only
selling the products in the country but
also in exporting the products.

Import Protection
Import protection is designed to reduce
imports being brought from abroad.
 There are many different types of import
protection,
 One is TARIFFS or CUSTOMS DUTIES.
 These are taxes on imported goods, the
Indian government for example charges
60% customs duties on imported cars – a
£100,000 car would now cost £160,000….

Import Protection
……..
 High taxes on imported cars help reduce
the number of foreign cars in the market
– meaning that more cars produced in
India are bought – helping the Indian
economy.

Quotas




Quotas are limits on the physical number of
goods that can be imported over a period of
time.
For example a country may impose a quota
of 100,000 cars to be imported from Japan
Safety standards can also be a hidden way of
reducing the number of imports.
This discourages foreign firms from selling to
the country because they may have to make
specific products or modifications for that
country
Export Subsidies
May countries operate a system of
EXPORT SUBSIDIES.
 The government may give firms that
export products money (a subsidy) which
helps to reduce the cost of production.
 The effect is to reduce the price of these
goods when they are sold abroad, making
the product more price competitive price
so sales may be higher than otherwise…

Export Subsidies



Export subsidies can simply be the opposite
of a tax (like Customs duty).
Round the World today, for example,
governments subsidise the exports of
agricultural products like wheat or cotton,
giving formers an advantage over the
competition in other countries.
Grants are given to develop new cars,
lowering the cost or research and
development, so cars can be sold at a
cheaper price.
Import Protection and Export
Subsidy
These two together mean that some
businesses gain and some businesses
loose out.
 Some businesses see their sales grow,
while some products may not be sold in a
particular country.

Note…..
Test Yourself
Test Yourself
Test Yourself
Review Questions

Complete the Unit 22 review questions