International Trade Economics Quiz

Course Information

• Course: International Economics and Trade
• Date: 2024.11.07
• Instructor: Dr. Julija Gavėnaitė-Sirvydienė
• Contact Information: [email protected], 866204092
• Course Topics & Dates:
  • Introduction to International economics and trade; 2024.11.07
  • Theory of Comparative Advantage; 2024.11.07
  • Heckscher-Ohlin Model; 2024.11.20
  • Alternative Trade Theories; 2024.11.20
  • Tariffs; 2024.11.28
  • Balance of Payments; 2024.11.28
  • Foreign Exchange Determination; 2024.11.28
  • International Lending and Financial Crises; 2024.12.05
  • Test; 2024.12.05
  • Business Challenge Presentation; 2025.01.09

Instructor Information

• PhD in Economics
• Risk management expertise
• Cybersecurity issues in financial sector
• Customer experience management
• Travel enthusiast
• Former rock band guitarist

Getting to Know Each Other (Icebreaker)

• Unlimited Ice cream vs. Unlimited fries
• Super strength vs. Super speed
• Invisible vs. Able to fly
• Batman vs. Spiderman
• Brush hair vs. Brush teeth
• Study every day vs. Study last minute

International Economics and Trade - Introduction

• International Economics: Studies how countries interact through trade, investment, finance, and policies.
• Aims to understand: effects of cross-border economic activity, factors influencing trade flows, and impacts of policies on global markets.

International Economics & Trade - Introduction (Key topics)

• International Economics: exchange across borders, why trade, trade's effect on welfare, trade theories
• International Finance: capital flows, exchange rates, balance of payments, international investments' influence on economies, financial institutions (e.g., the IMF), managing crises, managing economic crises.

International Economics and Trade - Introduction (Additional info)

• Explains:
  • How nations benefit from interdependence
  • Impact of globalization on national economies
  • How countries balance global participation's challenges and benefits

Controversial Developments

• Trade War of 2018 (initiated by President Trump)
• Immigration
• Brexit (Brexit referendum)
• China's exchange rate

Trade War of 2018 Details

• Key issues: intellectual property, currency manipulation, access for US companies
• Objectives: reduce trade deficit, protect American jobs, and force policy changes.
• Economic impact: increased costs for US consumers and businesses, hurt American industries and consumers more than helped (debate exists by economists)

Immigration

• Global population: 260 million reside outside their country of birth; high in some countries.
• Economic analysis: immigration generally brings net benefits by filling labor shortages, contributing to economic growth, and supporting firms.
• Certain low-skilled workers experience negative impacts.

Brexit

• June 23, 2016 referendum: 52% voted to leave the EU.
• Reasons for leaving: sovereignty concerns, immigration fears, economic benefits
• Consequences: political & economic uncertainty, Northern Ireland border challenges, formal exit March 2019, ongoing negotiations (for the UK) defined the new trading relationships.

China's Exchange Rate:

• Exchange rate: value of one country's currency relative to another.
• Controversy: China's currency manipulation, unfair trade advantage.
• Effects:
  • Trade surpluses for China
  • Inflation & economic control (in China)
  • Global tensions between China and other countries (e.g., US)
  • Investment flows, currency volatility, pressure on reserves.

Demand and Supply

• Basic economic concepts that describe price and quantity determination in a market.
• Four key questions:
  • Why do countries trade?
  • How does trade affect production & consumption?
  • How does trade affect economic well-being?
  • How does trade affect income distribution?

Demand and Supply: Answers

• Differences in demand & supply conditions across countries drive trade.
• Trade initiates due to arbitrage opportunities (profit from price differences in separated markets).
• Countries export goods where prices are lower and import where they are higher.
• Free Trade changes equilibrium prices, impacting consumption and production in each country.

Demand and Supply: Answers Continued

• Trade impacts each country's economic well-being, with gains for those producing/importing goods and losses to those affected by trade (producers of import-competing products + consumers of exportable products).

Theory of Comparative Advantage

• David Ricardo's theory
• Trade is beneficial even if one country has no absolute advantage in all goods (relative advantage & efficiency matter).
• Opportunity cost: Cost of creating one good, preventing production of another.

Theory of Comparative Advantage (Elaboration)

• Relative productivity differences between nations are the key driver behind beneficial trade.
• Nations should specialize in products where their relative inefficiency is the lowest.
• Trade without absolute advantage is still mutually beneficial.

Theory of Comparative Advantage (Implications)

• Impact on the South (low-wage countries):
  • Can develop export-driven industries, potentially boosting income and employment.
  • Possible job losses in sectors where they lack comparative advantage.
  • Wages may remain low, but increased productivity can lead to better standards.
• Impact on the North (high-productivity & high-income countries):
  • Export of high-value goods and services where their productivity is higher than in the South.
  • No harm, instead expansion on trade.

Addressing the Fairness Concerns (in trade)

• Wage differences are often a result of productivity differences rather than exploitation through trade.
• Increased productivity in the South can lead to higher wages and improved living standards.
• Crucial is to focus investments and strategic reforms on boosting productivity rather than just trade.

Protectionism and Free Trade

• Protectionism: Government restrictions on international trade to protect domestic industries, justified by job preservation, supporting emerging industries, and national security.
• Types of protectionism: Tariffs, quotas, subsidies, and import restrictions.

Criticisms of Protectionism

• Higher prices for consumers due to limited imports
• Reduced efficiency and innovation in the lack of competition
• Retaliation, trade wars from other countries
• Resource allocation distortions (lacks flow of resources to most efficient producers): slower growth

Imposition of a Tariff

• Tariffs raise prices (imposed on imported goods) leading to consumers buying less imports and supporting domestic producers.
• Tariffs are used to protect domestic industries but can come at a cost (reduced efficiency + competition from other countries).

Protectionism: Overall

• Aims to protect domestic industries
• Comes at a cost to consumers (higher prices/less choice, reduced innovation), efficiency, + trade relations; a complex policy.
• Benefits exist in short-term, but economists advocate for long term benefits of free trade (greater efficiency + innovation).

Next steps in the course

• Practice subgroup 2, 2024.11.14; 14:40 - 16:10
• Practice subgroup 1, 2024.11.14; 16:20 - 17:50