Free Trade and Protectionism IB Economics

WORLD TRADE ORGANIZATION Supervise and liberalize international trade WORLD TRADE ORGANIZATION

WORLD TRADE ORGANIZATION 160+ member states Supervise and liberalize international trade WORLD TRADE ORGANIZATION

WORLD TRADE ORGANIZATION Established 1 January 1995 160+ member states Supervise and liberalize international trade WORLD TRADE ORGANIZATION

WTO FUNCTIONS

Administer WTO trade agreements WTO FUNCTIONS

WTO FUNCTIONS Forum for trade negotiations Administer WTO trade agreements WTO FUNCTIONS

WTO FUNCTIONS Handle trade disputes Forum for trade negotiations Administer WTO trade agreements WTO FUNCTIONS

WTO FUNCTIONS Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements WTO FUNCTIONS

Provide technical assistance and training for developing countries Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements WTO FUNCTIONS

WTO FUNCTIONS Cooperate with other international organizations Provide technical assistance and training for developing countries Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements WTO FUNCTIONS

DOHA DEVELOPMENT AGENDA

DOHA DEVELOPMENT AGENDA Agriculture, services trade, market access for nonagricultural products, and intellectual property issues DOHA DEVELOPMENT AGENDA

DOHA DEVELOPMENT AGENDA

Gains from International Trade Lower prices Greater choice Differences in resources Economies of scale Increased competition Source of foreign exchange

S(Domestic) D S(World) P W P e Price of wheat ($ per ton) Q1 Qe Q2 Quantity of wheat (000s tons)

S(Domestic) D S(World) P W P e Price of wheat ($ per ton) Q1 Qe Q2 Quantity of wheat (000s tons)

S(Domestic) D S(World) P W P e Price of wheat ($ per ton) Q1 Qe Q2 Quantity of wheat (000s tons)

Arguments for Protectionism Protecting domestic employment Protecting the economy from low-cost labor Protecting an infant (sunrise) industry Avoid the risk of over-specialization Strategic reasons Prevent dumping Protect product standards Raise government revenue Correct a balance of payments deficit

Government Intervention in International Trade Tariffs Subsidies Quotas Regulations to limit trade

P W P e Price of wheat ($/ton) S(Domestic) D S(World) P W P e Price of wheat ($/ton) Q1 Qe Q2 Quantity of wheat (000s tons) S(World) + tariff Pw+t Q3 Q4 Increase domestic Decrease domestic production consumption

Consumer Surplus Before & After Tariff Price Consumer Surplus S PW + T a b c d PW Q1 D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d

Producer Surplus Before & After Tariff Price S PW + T a PW Q1 D Quantity Q3 Q4 Q2 Change in producer surplus = + a

Summarize to this Point … Price Consumer Surplus S PW + T a b c d PW Q1 D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d Loss in Total Surplus = ????? Change in producer surplus = + a = (b + c + d)

Net Change in Society Wealth with Tariff Price Consumer Surplus T · (Q4 – Q3) S Net change in welfare? Net loss: b + d PW + T “Deadweight loss” a b c d PW Q1 D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d Change in producer surplus = + a + c Change in government revenue =

S(Domestic) D S(World) P W P e Price of wheat ($/ton) Q1 Qe Q2 Quantity of wheat (000s tons) S(World) + tariff Pw+t Q3 Q4 a b c d e f g h i j k

Illustrate and Explain… Draw your own copy of the tariff diagram, with semi-conductors in Japan as the example. Make a table with two columns: Winners and Losers. List stakeholders who win or lose by the imposition of the tariff and give a brief explanation in each case of why. Consider possible international implications. Use the letters in the diagram to specifically identify the costs and benefits.

Subsidies S(Domestic) D S(World) P W P e Price of wheat ($ per ton) Q1 Qe Q2 Q of wheat (000s tons) Subsidies S(Domestic) + subsidy subsidy Pw+ Q3 e f g a b c d

Illustrate and Explain… Draw your own copy of the subsidy diagram, with cotton in the USA as the example. Make a table with two columns: Winners and Losers. List stakeholders who win or lose by the granting of a subsidy and give a brief explanation in each case of why. Consider possible international implications. Use the letters in the diagram to specifically identify the costs and benefits.

Quotas P W P e Price of wheat ($ per ton) S(Domestic) S(World) P W P e Price of wheat ($ per ton) Q1 Qe Q2 Quantity of wheat (000s tons) Quotas S(Domestic) + Quota f g h i j k a b c d e Q3 Q4

Illustrate and Explain… Draw your own copy of the quota diagram, with textiles in Europe as the example. Make a table with two columns: Winners and Losers. List stakeholders who win or lose by the imposition of a quota and give a brief explanation in each case of why. Consider possible international implications. Use the letters in the diagram to specifically identify the costs and benefits.

Other Important Terms Voluntary export restraints (VERs) Administrative barriers Health and safety standards and environmental standards Embargoes Nationalistic campaigns