1、Unit One International Trade TheoriesPre-reading questions:nWhat is international trade about?nWhat are the incentives for countries to engage in international trade?nWhat theories on international trade have you studied?nWhich theories do you think best explain the nature of international trade?nIn
2、 what way have these theories helped you understand international trade?Mercantilism international trade is a zero sum game,i.e.that the benefit which one country gains from international trade means a corresponding detriment to another country.The Absolute Cost Model a country has the lowest produc
3、tion costs and supplies foreign markets,too,as a result.Example:say Turkey and Greece have the same average wage levelThe Comparative Cost Model The comparative cost model is based on two countries,two products and one factor of production:labor.Technical know-how or the state of technology is diffe
4、rent in the two countries.There are also constant returns to scale and perfect competition.The Heckscher-Ohlin-Samuelson(HOS)Model This model was also based on the comparative cost concept and the idea that competitive positions depend on the supply conditions in specific locations and are therefore
5、 linked to countries(rather than companies).The Leontief Paradox Empirical research conducted by Leontief quite soon after the Second World War showed that the specialization process in the US,for example,did not correspond to what HOS predicted(and this was repeatedly found in later research).Where
6、 free trade ought to have caused the Americans to concentrate increasingly on producing relatively capital-intensive goods the goods in which the US had a comparative advantage this did not appear to be what happened in practice;the US imported relatively capital-intensive goods instead of exporting
7、 them.Factor Intensity Reversal A fundamental criticism of the HOS model was that it assumes that the sectors can be arranged in order of capital-intensity and that this arrangement is universal,i.e.the same in all countries.This does not appear to be so in reality:for example,where the agricultural
8、 sector in the industrialized countries often has above average capital-intensity,in the developing countries it is often highly labor-intensive in comparison with other sectors in those countries.Such a phenomenon is known in theory as factor intensity reversal.Modern Trade Theories The new trade t
9、heories focused increasingly on the question:what can we say about the business characteristics of exporting companies as opposed to companies which do not or cannot export?The idea is that it is not so much national factors or,if you like,locational factors that explain in which goods a strong comp
10、etitive position can be developed,but rather factors relating to specific sectors or companies.Another important difference in relation to traditional trade theories is that modern trade theories abandon the assumption of constant returns to scale and replace it with the concept of economies of scal
11、e in production.For example,this may mean that as a company produces on a larger scale,average costs fall(internal economies of scale),but also that costs will decline if numerous other businesses are established in the vicinity(external economies of scale),or both.Key Terms interest rate The fee ch
12、arged by a lender to a borrower for the use of borrowed money,usually expressed as an annual percentage of the principal;the rate is dependent upon the time value of money,the credit risk of the borrower and the inflation rate.Interest rates can be calculated as simple,compounded or effective.divisi
13、on of labor The increasing specialization of occupations and specific tasks within occupations.The Division of Labor becomes more evident with increasing industrialism and modernity in societies.absolute advantage Term coined,and theory developed by Adam Smith in The Wealth of Nations(1776).If count
14、ry A can produce and export more of a commodity X at a cheaper cost or more efficiently the country B,then country A has an absolute advantage in producing X over country B.free trade Free trade exists when the international exchange of goods is neither restricted nor encouraged by government-impose
15、d trade barriers.Subsequently,the determination of the distribution and level of international trade is left to the operation of market forcescomparative advantage The theory of comparative advantage is a key idea in classical Liberal economic theory put forward by David Ricardo.It posits that if al
16、l countries specialize in producing what that are comparatively best at-i.e.what they are most efficient at producing-and then trade freely with one another,then the world will be better off economically.opportunity cost The cost of using a resource in one enterprise when it could be used in alterna
17、tive enterprises or investment opportunities measured by the return that could be obtained from using the resource in the alternative in investment.For example,if cash used in crop production could be placed in the bank at a 10%rate of interest，the opportunity cost of cash to the crop would be 10%.g
18、eneral equilibrium The condition reached when all markets(for products and productive factors)have cleared,that is,established equilibrium prices and quantities.factor of production A human service or material good that can be used to contribute to the success of a process of production.A constituen
19、t element of any production process.Factors of production can be classified as to(1)human(labor)or nonhuman(material)factors,or(2)original or produced factors.economy of scale the reduction in costs per item(unit costs)that results from large-scale production.The high capital costs of machinery or a
20、 factory are spread across a greater number of units as more are produced.This may be a result of automation or mass production;for example,in the car industry.Economies of scale can also be produced when firms that need similar services locate together,sharing the costs of their services;for exampl
21、e,on industrial estates.factor intensity The relative importance of one factor versus others in production in an industry,usually compared across industries.Most commonly defined in by ratios of factor quantities employed at common factor prices,but sometimes by factor shares or by marginal rates of
22、 substitution between factors.factor intensity reversal A property of the technologies for two industries such that their ordering of relative factor intensities is different at different factor prices.For example,one industry may be relatively capital intensive compared to the other at high relativ
23、e wages and labor intensive at low relative wages.Some propositions of the Heckscher-Ohlin Model require the absence of FIRs.Post-Reading ActivitiesI.Answer the following questions based on what you have already read in the text.1.On what grounds did Hume,Smith and Ricardo criticize the conception o
24、f Mercantilism?Do you agree with them?2.According to David Smith,nations should allow free trade and abolish government intervention,would you agree with him?3.In what aspect is HOS model different from the Ricardo model?4.What problem is the Leontief Paradox about?5.What is the fundamental criticis
25、m of the HOS model?6.What problems do modern international trade theories deal with?V.Translate the following passage into Chinese.1.Economic globalization is a historical process,the result of human innovation and technological progress.It refers to the increasing integration of economies around th
26、e world,particularly through trade and financial flows.The term sometimes also refers to the movement of people(labor)and knowledge(technology)across international borders.There are also broader cultural,political and environmental dimensions of globalization that are not covered here.2.At its most
27、basic,there is nothing mysterious about globalization.The term has come into common usage since the 1980s,reflecting technological advances that have made it easier and quicker to complete international transactionsboth trade and financial flows.It refers to an extension beyond national borders of t
28、he same market forces that have operated for centuries at all levels of human economic activityvillage markets,urban industries,or financial centers.VI.Translate the following sentences into English with the words or phrases given.1.通过国际贸易，可以使消费者和贸易国获取本国没有的商品和服务。（get access to/be exposed to）2.通过国际贸易
29、，富裕国家可以更高效地使用其劳动力、技术或资本等资源。（allow/enable）3.与当地企业不同，跨国企业都是在全球范围内从事经营活动。（as opposed to）4.近年来，中国的对外贸易呈现高速、稳定的增长。（register）5.在全球化的市场条件下，企业面临着与国内外企业的激烈的竞争。（given）.Speaking Activities:Oral presentationForm groups of three or four and prepare jointly for the oral presentation topic below.Then vote for a re
30、presentative in a group to make an 8 15-minute presentation before the whole class:During the last decades,the patterns of international trade have undergone substantial changes.The new developments include integration of countries into trading blocs(European Union,NAFTA,etc.)and globalization.While
31、 economic integration and globalization have brought about increased trade volumes among nations,they have also made the world market more volatile than ever before.What sensible measures are necessary for counteracting the volatility?Unit TwoThe Goals and Instruments of International Trade PolicyPr
32、e-reading Questions Do you have any idea about what a trade policy is?What are the possible objectives in formulating a international trade policy?What instruments could be used to realized the goals of the international trade policy?What trade policies has China adopted?Are free trade policies the
33、best for each nation in the world?Autarky At one extreme is the objective of autarky or natural self-sufficiency.Economic Welfare At the opposite extreme to autarky lie the goal of economic welfare that springs from the conception of international trade and investment as a opportunity to reap the be
34、nefits of international specialization.Protectionism the protection of domestic producers against the free competition of imports by regulating their volume through tariffs,quotas and the like.Stable Levels of Employment Contemporary governments try to restrain inflation while at the same time susta
35、ining employment,although they are commonly frustrated by conflicts between the policies needed to achieve these goals.Balance of Payments Sooner or later,all nations are compelled to remedy deficits in their balance of payments,whether through market adjustments or controls.When a nations reserve a
36、re low and its balance of payments is weak,the objective of payments equilibrium may come to dominate other objectives of its foreign economic policy and even of its domestic policy.Economic Development tariffs and other restrictive devices are employed to protect“infant industries”or to keep out“no
37、nessential”consumer goods.On the other hand,capital goods and other“essential”imports are encouraged by subsidies or favorable exchange quotas.Exports may also be regulated in an attempt to promote economic development.Agreements and Treaties Much of the foreign economic policy of a nation is effect
38、ed through agreements and treaties with other nations.For the most part,the legal rights that individuals and business enterprises enjoy in the foreign country are those spelled out in treaties and agreements previously negotiated by their own governments.Trade and Investment Policies Trade policy r
39、efers to all government actions that seek to alter current account transactions,especially trade in merchandise.Historically,the main instrument of trade policy has been the import tariff,but today non-tariff barriers and export promotion are often of equal or greater importance.Foreign Aid Policy F
40、oreign aid policy includes all of the activities involved in the field of governmental loans and grants that are intended to aid in the reconstruction,economic development,or military defense of recipient countries.Balance of Payments Policy Balance of payments policy embraces all of the actions of
41、government to maintain or restore equilibrium in their external accounts.In the face of an enduring,fundamental disequilibrium,governments generally respond to a deficit(surplus)by (1)deflating(inflating)the domestic economy with monetary and fiscal instruments,(2)devaluing(revaluing)the exchange ra
42、te,or(3)imposing exchange controls over some or all international transactions.Key termsinflation A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money,caused by an increase in available currency and credit beyond the proportion of available g
43、oods and services.infant industry A newly established domestic industry that is less productive than foreign producers.One of two conditions needed for infant industry protection to be welfare-improving,according to Mill,is that the protected industry will become,over time,able to compete internatio
44、nally without protection.Another condition,according to Bastable,is that the protected industry be able to pay back an amount equal to the national losses during the period of protection.national treatment National treatment is a fundamental principle of the trading system.It requires that imports b
45、e afforded no less favorable treatment than domestic goods once border measures have been applied.It is important not to confuse this with the MFN principle.non-tariff barriers Any restriction,charge,or policy other than a tariff,that limits access of imported goods.Examples of non-tariff barriers i
46、nclude quantitative restrictions,mainly import quotas and embargoes;import licenses;exchange controls;some practices of state trading enterprises;and certain rules and regulations on health,safety,and sanitation.most-favored-nation treatment Principle relating to a commercial treaty where two nation
47、s agree to accord each other the same favorable terms that would be offered in treaties with any other nationcurrent account A category in the balance of payments account that includes all transactions that either contribute to national income or involve the spending of national income.portfolio inv
48、estment refers to the purchase of foreign stocks,bonds or other securities.In contrast to FDI,foreign portfolio investors have no controlling interest in the investment,which is typically a short-term one.The relative ease with which portfolio investment can enter and exit countries has been a major
49、 contributing factor to the increasing volatility and instability of the global financial system.multinational company A corporation that operates in two or more countries.Since it is headquartered in only one country but has production or marketing facilities in others,it is the result of previous
50、FDI.Post-Reading Activities I.Answer the following questions based on what you have already read in the text.1.What is meant by the autarky policy in foreign trade?2.Why is it sometimes difficult to identify a specific foreign trade policy as protectionist?3.In what way do international trade and ca
