Download protectionism and free trade

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
 machinery, transport
and electrical
equipment;
chemicals, fuels and
lubricants; foodstuffs
 Bosnia and Herzegovina
Germany Slovenia
Austria Serbia
Italy
 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
 Protectionism
 Trade barriers
 Tariffs
 Quotas
 Subsidies
 Exports/Imports
 Autarky
 Dumping
 Barter
 Absolute advantage
 Comparative advantage
 Infant industry
 Strategic industry
 Trade surplus
 Trade deficit
 Balance of trade
 Balance of payments
 (In)visible trade
SB p. 132, RB p. 20
FREE TRADE
 international trading
without government
interference
 trade of goods without
trade barriers
PROTECTIONISM
 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
 organization which
 international
tries to foster global
organization which
monetary
deals with the rules of
cooperation, secure
trade between nations
financial stability,
to help producers of
facilitate international
goods and services,
trade, promote high
exporters and
employment and
importers conduct
sustainable economic
their business
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
a_________ economies of scale.
until
they
 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)
DISCUSS
FREE TRADE AND … SB. P. 135
 peace and stability
 size of markets available to exporters
 prices
 political and cultural barriers
 economic growth
 infant industries in developing countries
 pollution/environment
 labour standards
FREE TRADE…
 promotes
 guarantees
 guarantees
 breaks down
 fosters
 prohibits
 pollutes
 allows
 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.