KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 1 International Economics Part 4 Dr. Stefan Kooths BiTS Berlin (winter term 2013/2014)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 2 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 3 Goals of protectionism

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 4 Mercantilism

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 5 Tariffs vs. nontariff barriers to trade

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 6 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 7 Tariff as a tax on imports

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 8 Types of custom duties Specific tariff Ad valorem tariff

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 9 Effect on domestic producers

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 10 Effect on domestic consumers

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 11 Government revenues

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 12 Net national effect

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 13 Terms-of-trade effect: Small vs. large countries

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 14 Nationally optimal tariffs

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 15 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 16 Types of nontariff barriers

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 17 Import quotas: Small country analysis

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 18 Allocating import licenses Fixed favoritism Auction Resource-using procedures

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 19 Import quotas: Large country analysis

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 20 Voluntary export restraints

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 21 Other nontariff barriers Product standards Domestic content requirements Government procurement

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 22 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 23 Dumping vs. fair market value Normal value »Comparative (prices charged in domestic market) »Cost-based (selling below average cost)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 24 Types of dumping Predatory Cyclical Seasonal Persistent (price discrimination)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 25 Small exporting country analysis

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 26 Large exporting country analysis

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 27 Retaliation

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 28 Strategic trade policy: Boing vs. Airbus (1/2)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 29 Strategic trade policy: Boeing vs. Airbus (2/2)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 30 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 31 Stages of economic integration

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 32 Regional economic integration Source:

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 33 Trade creation and trade diversion

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 34 Other effects of economic integration Increase in competition (reducing monopoly power) »Lower prices (static efficiency) »Higher productivity/lower cost of production (dynamic efficiency) Lower cost by expanding scales of production More opportunities for business investments (FDI)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 35 Case study: The European Union

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 36 Trade embargoes

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 37 International trade disputes

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 38 GATT and WTO GATT (1947) »General Agreement on Tariffs and Trade WTO (1994) »World Trade Organization »

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 39 Outline 1.Introduction and Overview 2.Systemizing and Recording Cross-border Economic Activity 3.The Pure Theory of International Trade 4.Trade Policy: Free Trade vs. Protectionism Protectionism: Goals and instruments Tariffs Nontariff-barriers to trade Export subsidies (dumping) Economic integration and multilateral trade policy Free trade: Pros and cons 5.Foreign Exchange Markets and the Open Macroeconomy 6.Case Study: The Euro Area Crisis 7.Summary: The Key Lessons Learnt

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 40 First best vs. second best

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 41 Costs of protection Loss of welfare (deadweight losses) Foreign retaliation Enforcement costs Renk-seeking costs Rents to foreign producers (VERs) Dynamic inefficiencies (loss of dynamic efficiency)

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 42 Externalities

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 43 Promoting domestic production or employment

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 44 The infant industry/dying industry arguments

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 45 Public revenues

KOOTHS | BiTS: International Economics (winter term 2013/2014), Part 4 46 Noneconomic objectives National pride National defense Domestic income redistribution