INTERNATIONAL TRADE MK, UNIT 27 RB, p.20-25

INTERNATIONAL TRADE Lead-in (Key concepts, vocabulary SB p. 132, RB p. 20) Reading (RB, p. 20, 21) Listening (Mk, p. 132, 133) Discussion (MK, p.134, 135) Additional reading Balance of Trade and Balance of Payments (RB, p. 22) Sugar subsidies (Oh Sweet Reason, RB, p. 23)

CROATIA’S IMPORTS OR EXPORTS? transport equipment, machinery, textiles, chemicals, foodstuffs, fuels Bosnia and Herzegovina Germany Slovenia Austria Serbia Italy machinery, transport and electrical equipment; chemicals, fuels and lubricants; foodstuffs Italy Germany Russia China Slovenia Austria

HOW MUCH DO YOU ALREADY KNOW? Why do some people say that free trade is not fair trade? Which measures can governments impose to protect the national economy from competing foreign products? Which countries have trade deficit/surplus? What is autarky? What are dumping prices? What happens in a typical barter? What does comparative cost principle propose? What does a balance of payments include? What is exchanged in (in)visible trade? How can governments liberalize imports? What is the purpose of WTO agreements? What is the purpose of IMF?

Key concepts Free trade Protectionism Trade barriers Tariffs Quotas Subsidies Exports/Imports Autarky Dumping Barter Absolute advantage Comparative advantage Infant industry Strategic industry Trade surplus Trade deficit Balance of trade Balance of payments (In)visible trade SB p. 132, RB p. 20

FREE TRADE PROTECTIONISM international trading without government interference trade of goods without trade barriers policy of protecting domestic industries against foreign competition restrictions placed on the imports of foreign competitors by means of: tariffs, subsidies, import quotas, non-tariff barriers, embargo etc.

FREE TRADE or PROTECTIONISM? It protects jobs (votes). It allows specialization. It strengthens absolute/comparative advantage. It strengthens political interest. It provides access to more markets. It prevents dumping. It fosters efficient market mechanism. It protects domestic industries (esp. strategic / infant industries). It allows freer movement of resources. It adds costs to consumers. It protects national culture. It increases international competition and efficiency.

COMPARATIVE COST A situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor. Countries should specialize in the goods they can produce most efficiently. Source: Investopedia http://www.youtube.com/watch?v=Vvfzaq72wd0

EXAMPLE (http://www.econlib.org/library/Enc/FreeTrade.html) Some lawyers are better typists than their secretaries. Should such a lawyer fire his secretary and do his own typing? Not likely. Though the lawyer may be better than the secretary at both arguing cases and typing, he will fare better by concentrating his energies on the practice of law and leaving the typing to a secretary. Such specialization not only makes the economy more efficient but also gives both lawyer and secretary productive work to do.

WTO & IMF organization which tries to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. international organization which deals with the rules of trade between nations to help producers of goods and services, exporters and importers conduct their business

READING RB P.20, 21 PROTECTIONISM AND FREE TRADE THE COMPARATIVE COST PRINCIPLE REASONS FOR COMPARATIVE/ABSOLUTE ADVANTAGE EXAMPLES PROTECTIONISM (POLITICAL REASONS) TYPES OF TRADE BARRIERS (QUOTAS V. TARIFFS) FREE TRADE: GATT AND WTO OPPOSITION TO FREE TRADE PROBLEMS OF DEVELOPING COUNTRIES (IMF) TRADING BLOCKS Comprehension tasks: II (p.20), III (p.21)

TEXT SUMMARY: WHICH VERB IS MISSING? The comparative cost principle proposes that countries will r_______ the living standard if they s_______ in the production of the goods and services in which they are efficient. Politicians p______ strategic industries because if we a_______ all sectors in which we don’t have a comparative advantage, this might l_______ to structural unemployment.

Governments i_________ tariffs to d________ or w________ competitors, and r________ against restrictions imposed by other countries. Infant industries are protected until they a_________ economies of scale. Tariffs p______ revenue for the government. Developing countries wanted to c______ a fall in commodity prices so they started to p_______ import substitution.

Developing countries have debts because they can’t p_____ the interest, let alone r______ the principal, so they have to r______ (renew) a loan, or r _________ (postpone) repayments. Still, for fear of being excluded from international trade, third world countries have to l_______ their economies and l_______ trade barriers. Listening (MK, p. 132, 133) Discussion (MK, p.134, 135)

DISCUSS FREE TRADE AND … SB. P. 135 peace and stability size of markets available to exporters prices political and cultural barriers economic growth infant industries in developing countries pollution/environment labour standards

FREE TRADE… promotes guarantees breaks down fosters prohibits pollutes allows favours

FREE TRADE SB. P. 135 prohibits developing countries from protecting their infant industries pollutes the environment bcs of increased transport of goods allows rich countries to dump subsidized, industrially produced food in poor countries favours commercial values (not labour and environmental issues) promotes peace and stability guarantees producers (exporters) bigger markets guarantees consumers the lowest prices breaks down barriers bretween nations fosters economic growth

READING OH, SWEET REASON (RB p 23) TRUE OR FALSE? Sugar is produced from sugarcane only. The production of sugar in the EU is more efficient than production in Brasil. The EU subsidizes European sugar producers. European sugar is exported to developing countries. It is economically justified to buy sugar from the most efficient producers.