1、Chapter 1International TradeIn this chapter,well cover:Reasons and Effects of International Trade Development of International Trade Theories Benefits of Free Trade Trade Barriers Arguments for Trade Protection GATT and WTOInternational Trade Definition:the purchase,sale or exchange of goods and ser
2、vices across national borders Increases the number of goods that domestic consumers can choose from Decreases the cost of those goods through increased competition Allows domestic industries to ship their products abroad.Reasons and Effects Comparative advantage e.g.chartered accountant or painter?O
3、pportunity cost Note:absolute advantageReasons and Effects An economys annual GDP:C+I+G+(X-M)Trade surplus and trade deficit Exports and imports Exchange rate:appreciation and depreciation competitive devaluationDevelopment of International Trade Theories Mercantilism Absolute advantage Comparative
4、advantage Factor endowments International product life cycle New trade and national competitive advantageDevelopment of International Trade Theories Government intervention:tariff Adam Smith:absolute advantage “the invisible hand”David Ricardo:comparative advantageDevelopment of International Trade
5、Theories H-O model:factors of production Raymond Vernon:International product life cycle theory The late 1970s and early 1980s:New trade theoryBenefits of Free Trade Promotes competition and deters monopoly Increased variety of goods and services available to consumers Free trade has led to prosperi
6、ty and growth and that protectionism has had the opposite effectsTrade Barriers Tariffs:specific Tariffs and Ad Valorem Tariffs revenue tariff protective tariff non-tariff barrier(NTB):licenses and quotas Quota:import and export quota Voluntary export restraint(VER)Standards SubsidyArguments for Tra
7、de Protection National security argument：self-sufficiency Increased domestic employment argument:Job creation from imports Fallacy of composition Possibility of retaliation Long-run feedbacksArguments for Trade Protection Diversification for Stability Argument Infant-industry argument Protection aga
8、inst dumping argument Cheap foreign labor argument The retaliation argumentGATT and WTO GATT:General Agreement on Tariffs 1947 Three principles:1.equal,non-discriminatory trade treatment for all member nations;2.the reduction of tariffs by multilateral negotiation;3.the elimination of import quotas.
9、GATT and WTO WTO:World Trade Organization Six key objectives:(1)to set and enforce rules for international trade (2)to provide a forum for negotiating and monitoring further trade liberalization (3)to resolve trade disputesGATT and WTO(4)to increase the transparency of decision-making processes,(5)t
10、o cooperate with other major international economic institutions involved in global economic management,(6)to help developing countries benefit fully from the global trading systemGATT and WTO Three purposes of WTO rules 1.Protect the interests of small and weak countries against discriminatory trad
11、e practices of large and powerful countriesGATT and WTO 2.require members to limit trade only through tariffs and to provide market access not less favourable than that specified in their schedules 3.designed to help governments resist lobbying efforts by domestic interest groups seeking special fav
12、oursStudy QuestionsStudy Questions 1.Why do nations engage in international trade?2.How does a countrys international trade affect its exchange rate?3.What are some of the important theories of international trade?Study Questions 4.What happened to world trade in the 1930s?Why did it happen?5.What are the arguments in favor of trade protection?How valid are they?6.What are the functions of the WTO as an organization for liberalizing trade?
