International trade and globalisation
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Notes de leçon
Why countries trade
- Trade gives access to goods, services and productive inputs, wider markets and opportunities for specialisation or scale economies. Consumers may gain choice and lower costs; gains depend on competition and pass-through. Free trade removes discriminatory trade barriers, not all legitimate regulation or transport costs.
- Adjustment can displace particular firms, workers and regions even when aggregate opportunities grow. Training, mobility, safety nets, environmental costs and the time needed to find new work affect the outcome. Avoid claiming every person gains from greater trade.
Evaluate trade across groups
Comparative advantage
- Comparative advantage means lower opportunity cost; absolute advantage means more output from the same inputs. Fictional equal-resource capacities A: 10 wheat or 5 cloth; B: 6 wheat or 4 cloth, with constant trade-offs. A’s opportunity cost of cloth is 2 wheat; B’s is 1.5 wheat, so B has comparative advantage in cloth despite A’s absolute advantage in both goods.
- One wheat costs A 0.5 cloth and B two-thirds of a cloth, so A has comparative advantage in wheat. Trading 1 cloth for 1.75 wheat lies between their cloth opportunity costs. Each can obtain the traded unit at lower sacrifice than domestic production, before costs of exchange. Real gains depend on trading terms, capacity, adjustment and wider effects.
Fictional opportunity costs
Imports, exports and the balance of payments
- The trade balance is exports minus imports of goods and services over a stated period. Goods-only coverage must be labelled separately. The current account also includes net primary income, such as investment earnings and compensation, and secondary income, such as current transfers. Financial-asset purchases belong in the financial account rather than current trade.
- Fictional annual £bn: goods −20 plus services +15 gives trade −5; adding primary +8 and secondary −1 gives current account +2. A trade deficit can coexist with a current-account surplus. Examine causes, financing and sustainability rather than equating a deficit with government debt or economic failure.
Fictional annual current account
Free trade and protectionism
- Protectionist tools can include tariffs, binding quotas and subsidies designed to shield domestic producers. Embargoes can exclude specified trade but may pursue security or sanctions aims. Regulation can serve legitimate safety or environmental aims; assess discrimination and design. Infant-industry arguments rely on credible learning gains and an eventual end to support.
- Dumping under WTO rules involves export prices below normal value, ordinarily assessed against comparable home-market prices with required adjustments. A low price alone is not proof; anti-dumping measures require investigation of dumping, material injury and a causal link. Protection can raise consumer and input costs, weaken incentives or trigger retaliation, so compare its stated objective with costs and alternatives.
Distinguish the policy tools
Trading blocs
- A free-trade area reduces specified internal barriers but usually leaves members with separate external tariffs and rules of origin. A customs union combines removal of internal customs tariffs with a common external tariff. A single market involves deeper integration; these terms are not interchangeable.
- Agreements can create trade by replacing higher-cost domestic production, but can divert trade away from a lower-cost non-member supplier. Coverage, exceptions, compliance costs and adjustment determine effects. Do not assume all members or sectors receive identical gains.
Trading arrangements differ
Globalisation
- Globalisation links economies through trade, finance, investment, technology and migration. Transnational corporations operate across borders and may bring jobs, skills and supplier opportunities. Location choices reflect productivity, wages, market access, infrastructure and logistics, not wages alone.
- Potential costs include displaced work, poor conditions, unequal gains, environmental harm and the international spread of disruptions. Diverse global sources can also cushion local shocks. Evaluate governance, distribution, local linkages and resilience across time rather than claiming a universal benefit or cost.
Trace a global connection
Fictional tariff calculation
- For a stated customs value of £100 and a 10% tariff, duty equals £10, giving £110 before other taxes or charges if the original value is unchanged. This is a teaching assumption, not a current tariff schedule or a complete landed-cost calculation.
- The final retail-price change depends on how exporters, importers and retailers adjust margins and prices, and how demand and competition respond. The duty’s arithmetic is distinct from who ultimately bears the economic cost. Imported-input costs can affect domestic producers too.
Fictional import duty calculation
Diapos
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1.What is an import?
Easy- Aa good or service bought from another country
- Ba good sold abroad
- Ca tax
- Da bank
2.What is globalisation?
Easy- Alocal trade only
- Ba tax
- Ca bank
- Dincreasing interconnection of economies worldwide
3.What is a tariff?
Easy- Aa limit
- Ba loan
- Ca tax on imported goods
- Da subsidy
4.What is protectionism?
Easy- Aa bank
- Bpolicies protecting domestic industries from foreign competition
- Cfree trade
- Dno trade
5.What is free trade?
Easy- Atrade without discriminatory barriers to cross-border exchange
- Btrade with high tariffs
- Cno trade
- Dbarter
6.What is a trade deficit?
Easy- Aexports exceed imports
- Bno trade
- Cbalanced trade
- Dimports exceed exports
7.What is a trade surplus?
Easy- Ano trade
- Bbalanced
- Cexports exceed imports
- Dimports exceed exports
8.What is comparative advantage?
Easy- Ahaving the most workers
- Bthe ability to produce at a lower opportunity cost
- Cthe ability to produce the most
- Dhaving the most resources
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