International Trade Political Economy

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Questions and Answers

What was the primary goal of the General Agreement on Tariffs and Trade (GATT)?

To gradually eliminate barriers to trade. (correct)

To eliminate non-tariff barriers only.

To create a formal institution for trade.

To impose strict tariffs on imports.

Which of the following is NOT a procedure initiated by the World Trade Organization (WTO)?

Market Access Program (correct)

Dispute Settlement Body

Sanction Enforcement Procedure

Trade Policy Review Mechanism (TPRM)

In what year did GATT transition to become the World Trade Organization?

1987

1995 (correct)

1998

2001

Which round of GATT focused on new issues such as services and intellectual property?

Uruguay Round Signup and view all the answers

What is one of the consequences of failing to comply with a WTO ruling after an appeal?

Compensation to the injured country. Signup and view all the answers

Which of the following statements about the power of the WTO is true?

It has more power than other economic dispute resolution organizations. Signup and view all the answers

Which of the following was a major trade dispute handled by the WTO?

Kodak vs. Fuji Signup and view all the answers

What was one of the objectives of the multilateral trade negotiations initiated in Geneva in 1947?

To begin multilateral agreements on trade liberalization. Signup and view all the answers

What percentage of the global telecommunications market is included in the WTO's pledge to liberalize, based on participation from countries?

95% Signup and view all the answers

Which of the following pertains to the WTO's current focus on anti-dumping policies?

Strengthening regulations on antidumping duties Signup and view all the answers

How long are WTO members required to enforce patents under the TRIPS agreement?

20 years Signup and view all the answers

What aspect of the agricultural sector is the WTO particularly concerned with?

High levels of tariffs and subsidies Signup and view all the answers

Which of the following arguments aligns with the WTO's efforts to protect intellectual property?

Strengthening patent laws globally Signup and view all the answers

What is the primary goal of economic liberal thinking regarding international trade?

To create a free trade system. Signup and view all the answers

Which of the following best defines Gross Domestic Product (GDP)?

The total value added created in an economy. Signup and view all the answers

Which instrument of trade policy is primarily designed to protect domestic industries from foreign competition?

Tariffs Signup and view all the answers

What does the formula for calculating GDP include as one of its components?

Consumer Spending Signup and view all the answers

Why might countries prefer to intervene in international trade despite nominal commitments to free trade?

To protect politically important groups. Signup and view all the answers

Which of the following is a common method for governments to regulate trade policies?

Implementing administrative policies. Signup and view all the answers

What does a trade deficit imply for a country's economy?

The country's imports exceed its exports. Signup and view all the answers

Which component does NOT contribute to the GDP calculation?

Administrative regulations Signup and view all the answers

What is the primary purpose of the infant industry argument?

To protect industries until they can compete globally Signup and view all the answers

Which economic theory emphasizes the concept of comparative advantage?

David Ricardo's Comparative Advantage Signup and view all the answers

What was a response of countries to the Great Depression regarding trade?

They established significant trade barriers Signup and view all the answers

What does the Heckscher-Ohlin model primarily analyze?

Factors that determine production capabilities across countries Signup and view all the answers

Who is considered the pioneer of free market policies through the concept of the invisible hand?

Adam Smith Signup and view all the answers

Which of the following is NOT a characteristic evaluated by the Heckscher-Ohlin model?

Demand elasticity of goods Signup and view all the answers

What economic event led to the enactment of the Smoot-Hawley Act in 1930?

The Great Depression Signup and view all the answers

What does the term 'factor abundance' refer to in the Heckscher-Ohlin model?

The relative endowment of different resources Signup and view all the answers

What is a drawback of free trade regarding government income?

Government loses income from custom duties Signup and view all the answers

Which argument supports protecting an industry until it becomes competitive internationally?

Infant industry Signup and view all the answers

Who primarily benefits from tariff protection?

Domestic producers of the good produced Signup and view all the answers

What type of legislation could moderate the foreign sourcing practices of auto manufacturers?

Local content requirement Signup and view all the answers

A tariff is best defined as which of the following?

Tax on imports Signup and view all the answers

Who was a notable opponent of mercantilism?

Adam Smith Signup and view all the answers

Which trade policy allows for a specified quantity of goods to be imported at a certain tariff rate?

Quota Signup and view all the answers

According to Ricardo's principle, how do specialization and trade affect national output?

Resources are directed to their highest productivity Signup and view all the answers

Which of the following statements is true regarding regional trade agreements?

They are not necessarily in conflict with National Treatment. Signup and view all the answers

Who is associated with the Theory of Relative Factor Endowments?

Eli Heckscher and Bertil Ohlin Signup and view all the answers

What does the theory of Comparative Cost Advantage, proposed by David Ricardo, emphasize?

Countries should produce goods in which they have comparative advantages. Signup and view all the answers

Based on the Heckscher-Ohlin Theory, which statement is likely to be true about Brazil and Chile?

Brazil will produce more timber after initiating trade. Signup and view all the answers

In the context of the Heckscher-Ohlin model, which factor predominantly causes the differences between two countries?

Differences in relative abundance of factors of production. Signup and view all the answers

Which of the following is NOT a conclusion derived from New Trade Theory?

Economic gains must occur at a national level for trade to be beneficial. Signup and view all the answers

What is a key characteristic of the Asia-Pacific Economic Cooperation (APEC) forum?

It consists of diverse political regimes, both authoritarian and democratic. Signup and view all the answers

What argument does the New Trade Theory reinforce regarding government trade policies?

Strategic export policies can lead to trade benefits. Signup and view all the answers

Study Notes

The Political Economy of International Trade

International trade involves the exchange of capital, goods, and services across international borders.
Free trade describes a situation where governments do not restrict what citizens can buy from or sell to other countries.
Mercantilism (16th-18th centuries) prioritized state wealth, with a focus on exporting more than importing, acquiring precious metals, and using the state to protect and boost domestic monopolies.
Liberalism (19th century onward) emphasizes market development, individual interests, and minimal government intervention in the economy. Focus is on absolute and comparative advantage, specialization, and overall gains in wealth.
Marxism (19th-20th centuries) critiques capitalism, highlighting class conflict and exploitation. It views economics as driving politics, with a focus on class struggle and the power dynamics between the "haves" (e.g., MNCs, elites) and the "have-nots" (e.g., labor, proletariat).
The goal of economic liberal thinking was to create a free trade system to facilitate trade between countries of differing economic standings.
Economic organizations, such as the World Trade Organization, were formed to address international trade interactions.
Mercantilist leaders often want to protect domestic markets for various reasons.
Many nations are nominally committed to free trade but sometimes intervene to protect politically important groups.

Evolution of the IPE

The era from the late Middle Ages to the 18th century, the Age of Discovery, saw new frontiers opened in the Americas, Asia, and Africa. The exchange of goods and people connected colonies to home states.
Key factors that influenced this era include mercantilism, ownership of precious metals, navigation, and colonization.
Industrialization was a major shift towards mass production, assembly lines, and electric power.
Industry 2.0 (1870) saw mass production, assembly lines, and electric energy becoming prevalent and increasing economic growth.
Industry 3.0 (1969) was dominated by automation, computers, and electronics, further boosting globalization and efficiency.
Industry 4.0 (Present) features cyber-physical systems, the internet of things, and networking. These advancements have led to greater global interconnectivity and automation.

Gross Domestic Product (GDP)

GDP is the most common measure of economic size, calculated for countries, regions, or groups of countries.
GDP represents the total value added of goods and services in an economy.
Value added is calculated by subtracting the value of intermediate consumption (resources needed to make goods) from the total value of produced goods.
There are 5 components making up the GDP. Private consumption, Investment, Government spending, Exports (X) and Imports (M).

Why Countries Intervene in International Trade

Countries intervene in international trade due to political reasons (protecting jobs, national security, retaliating to unfair competition, protecting consumers, or advancing foreign policy aims) and economic reasons (generating revenue, manipulating trade flows, and nurturing infant industries).

Instruments of Trade Policy

Tariffs
Subsidies
Import quotas
Voluntary export restraints
Local content requirements
Antidumping policies
Administrative policies (technical barriers)

New Trade Theory (NTT)

It explains why countries trade similar products, emphasizing monopolistic competition, economies of scale (unit cost reductions due to large-scale output), network effects, and first-mover advantages.
This theory supports government policies to promote growth of key industries.
New trade theorists believe that government intervention, such as supporting the growth of industries, is justified. However, classic trade theorists disagree, often stating that government intervention may not always benefit the country as a whole.

WTO (World Trade Organization)

The WTO is an umbrella organization for global trade governance managing the international system via the promotion of trade liberalization, dispute resolution, and safeguards.
The WTO facilitates trade deals, conducts periodic trade policy reviews of member states and resolves trade disputes.
The WTO has a dispute resolution body which is more powerful than other economic dispute resolution arrangements.

The Political Economy of Trade and the WTO

The WTO has experience with several trade rounds, including significant tariff reductions and negotiations to reform issues like telecommunications, financial services, and more. These are aimed at reducing trade barriers and liberalizing trade practices.
The WTO faces challenges, notably protectionism (using tariffs and subsidies, often to protect domestic industries), and maintaining world trade balances and stability.

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Description

Explore the foundations of the political economy of international trade, focusing on historical perspectives like mercantilism, liberalism, and Marxism. This quiz assesses your understanding of economic theories and their implications on global trade practices. Test your knowledge on the dynamics of trade and the role of government intervention.