What Is International Trade?  International trade is the exchange of goods and services between countries.  This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. supplydemand  Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries.

Increased Efficiency of International Trading  Global trade allows wealthy countries to use their resources more efficiently.  Countries are endowed with different assets and natural resources, some countries may produce the same good more efficiently and therefore sell it more cheaply than other countries.

Increased Efficiency of International Trading  Specialization in international trade  Comparative Advantage  Absolute Advantage

Other Possible Benefits of International Trading  International trade not only results in increased efficiency  allows countries to participate in a global economy  encouraging the opportunity of FDI  economies can therefore grow more efficiently and can more easily become competitive economic participants.

Aims of International Trade Policy  Covering Production and Resource Deficit  Providing A market to Product Surplus at Internal Economy  A Wide Market Volume  Competition  Improving Domestic Market Demand  Economic Dynamism

What is Protectionism?  Protectionism as a restriction of trade is present as many countries have not pursued a policy of free trade trading internationally because it involves costs as well as benefits.  The restriction of imports into a country by government.

REASONS FOR PROTECTIONISM Protects the country businesses from extra competition Helps new the country businesses to develop before they face competition Helps protect the country jobs Prevents foreign countries ‘dumping’ lots of cheap imports into the country Prevents imports of harmful or desirable goods

Arguments for Protectionism  Raises government revenue  Government revenues increase since the US government collects the tariff revenue.

Raises government revenue (example)  It is true that tariffs raise revenue for the government (though quotas do not directly), but this is a very inefficient way to raise revenue because consumers end up paying for this tax by higher consumer prices. The government could raise an equivalent amount of revenue by raising corporate or personal income taxes.

Protectionist International Trade Policy  Safeguards are usually seen as responses to fair trade behaviour, as opposed to unfair trade practices such as  Custom tariffs  Quotas  Dumping  Subsidies

Custom Tariffs  ”Tariffs” means that are taxes on imports and are usually a percentage of the price of the import, is one method of restricting trade.  The aim of the tariffs which are designated with international aggrements is decreasing tariffs, removing completely and, so liberalization of world trade.

Quotas  “Quota” is another way of restricting trade through physical limit on the amount of an imported good that may be sold in a country in a given period.  In general, tariffs are preferred to quotas.

Why are tariffs preferred to quotas as a means of controlling imports?tariffs  Three Reasons Why Tariffs Are Preferable to Quotas  Tariffs Generate Revenue for the Government  Import Quotas Can Lead to Administrative Corruption  Import Quotas Are More Likely to Cause Smuggling

Dumping  Act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of productioncosts of production

Subsidies  A subsidy is a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports.

Types of Subsidies  1-Trade protection (import restrictions):Measures used to limit imports from other countries may constitute another form of hidden subsidy.

Types of Subsidies  2-Export subsidies (trade promotion) :Various tax or other measures may be used to promote exports that constitute subsidies to the industries favored.