🇺🇳 International Trade Concepts 📺
🌐 A Simple Introduction [2020 Update] 📈
by Eric Smith
Video: "Level I CFA: International Trade and Capital Flows-Lecture 1"The following lectures provide a nice overview of this topic:
1) Advantages of International Trade
1.1) Benefits of Global Trade for ConsumersThe following are the advantages of globalization and free trade for consuming end-user individuals, regions and nations:
- More Product Variety: Households and other end-users have a greater diversity of products to choose from. For example, after Japanese auto-makers entered the American markets after World War II, consumers benefitted as they had access to a wide range of cars.
- Lower Prices: The increasing competition forces both local and global companies to decrease their prices.
1.2) Benefits of Global Trade for ProducersThe following are the advantages of globalization and free trade for producing companies, regions and nations:
- More Markets: Producing firms can export their goods to a greater variety of markets, thereby generating more profits.
- Increase in Employment: As companies grow their export markets, home production must increase, leading to a rise in general employment levels.
2) Disadvanges of International Trade
- Loss of Jobs in Inefficient Sectors: As those local domestic companies which are less efficient are forced to shut down due to increased overseas competition from cheaper and better imports, job losses occur.
3) Trade Restrictions: Tariffs
3.1) What are TariffsTariffs are taxes imposed by the government on imported goods.
3.2) Reasons for Tariffs
- Protection of Domestic Industries: In the short term, the increase in prices of imported goods removes pressure on local industries to compete.
- Reduction of Trade Deficits: Tariffs increase the price of imports, thus decreasing their demand.
- Increase in Tax Revenue: Some governments resort to tarrifs to reduce shortfalls in tax revenues. For example, some states are unable to collect sufficient taxes from their own citizens.
4) Trade Restrictions: Quotas
4.1) What are Quotas?Quotas are quantity-based restrictions on the absolute amount of imports permitted over a selected period.
5) Trading Blocs: Free Trade Areas to Economic Unions
5.1) What is a Trading Bloc?A trading bloc is a group of countries, nations and states which has reduced or eliminated barriers to trade and movement in production factors among bloc members. There are very low or even zero tariffs on imports and exports among member-states.
Trading blocs have varying levels of integration, ranging from Free Trade Areas to Economic Unions.
5.2) What is a Free Trade Area (FTA)?A Free Trade Area or FTA connotes a grouping of states which have no trade restrictions against each other, yet are free to pursue their own policies against non-member nations. An example is the NAFTA agreement between the USA, Mexico and Canada.
5.3) What is a Customs Union?A Customs Union is a Free Trade Area which also has a common trade policy with non-members. An example is the Benelux Customs Union formed in 1948.
5.4) What is a Common Market?A Common Market is a Customs Union in which the free movement of production factors (such as labour and capital) occurs.
5.5) What is an Economic Union?An Economic Union is a Common Market with a common unified fiscal policy and a single monolithic monetary policy. It is characterized by the absence of internal trade barries and common external barriers with the free movement of production resources.
Examples include the European Union and the GCC (Gulf Co-Operation Council).
5.6) What is a Monetary Union?A Monetary Union denotes a grouping in which member-states decide to adopt a single common currency. Examples include the European Monetary Union, the Austro-Hungarian Union, the Soviet Union and the Indian Union.