Trade and Specialization Overview

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Questions and Answers

What is a primary reason for the rise of global trade since 2000?

  • Increase in domestic trade barriers
  • Accession of China in the World Trade Organisation (correct)
  • Reduction in international cooperation
  • High transportation costs

What outcome is typically associated with specialisation in trade?

  • Decreased productivity
  • More efficient use of resources (correct)
  • Limited production capabilities
  • Improved scarcity of goods

Which of the following best describes 'import'?

  • Shipping of foreign goods into a country (correct)
  • Shipping of goods previously imported to another country
  • Shipping of goods produced locally to another country
  • Trading services across countries

What is one potential problem of international trade?

<p>Market monopoly or oligopoly (D)</p> Signup and view all the answers

Which statement accurately represents 'trade in services'?

<p>Invisible trade that occurs across different countries (A)</p> Signup and view all the answers

What is a potential consequence of high transportation costs?

<p>Reduced benefits from trade (C)</p> Signup and view all the answers

Which policy aims to protect local producers by limiting foreign competition?

<p>Quota (D)</p> Signup and view all the answers

What effect does a tariff have on imported products?

<p>Increases their price (B)</p> Signup and view all the answers

What is one reason governments might implement trade protection policies?

<p>To retaliate against trade measures by other countries (D)</p> Signup and view all the answers

How do subsidies affect locally produced products?

<p>They decrease the prices of locally produced products (A)</p> Signup and view all the answers

How does a tariff generally affect consumers?

<p>Consumers may pay higher prices as businesses pass on tariff costs. (D)</p> Signup and view all the answers

What is one response a country can take against trade protection policies?

<p>Initiate high-level dialogues with the imposing country. (B)</p> Signup and view all the answers

What role does the World Trade Organisation (WTO) play in international trade?

<p>To monitor and review trade policies to ensure compliance. (B)</p> Signup and view all the answers

What major challenge currently affects trading in Hong Kong?

<p>Competition from neighboring ports due to high labor costs. (C)</p> Signup and view all the answers

What percentage of Hong Kong’s total exports is represented by re-exports?

<p>98% (B)</p> Signup and view all the answers

Which of the following is NOT a strategy to address challenges in Hong Kong's trade?

<p>Reduce all shipping costs unconditionally. (C)</p> Signup and view all the answers

What advantage do subsidies provide to consumers in a domestic market?

<p>Lower prices due to government support for local producers. (C)</p> Signup and view all the answers

What is the primary function of Hong Kong's trade policy?

<p>To adopt a free trade policy with minimal restrictions. (C)</p> Signup and view all the answers

Flashcards

Trade Protection Policy

Government actions to limit or restrict imports of goods.

Tariff

Tax on imported goods.

Quota

Restriction on quantity of imported goods.

Subsidy effect

Government financial support for local businesses.

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Embargo

Complete ban on importing specific goods.

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Specialization in trade

Focusing on producing specific goods or services, leading to increased efficiency and productivity through trade with others.

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International trade

Trade between countries, exchanging goods/services to fulfill needs and maximize resources.

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Import/Export

Import: purchasing goods produced elsewhere; Export: producing goods for sale in other places.

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Global Trade Trend

Global trade has generally increased, especially after 2000, due to factors like lower costs and fewer barriers.

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Gains from trade

More efficient resource use, economic growth, jobs, and lower prices due to global trade.

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Tariff's impact on consumers

Tariffs raise the prices of imported goods, as businesses pass some of the tariff cost onto consumers.

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Subsidy's impact on consumers

Subsidies lower prices for consumers by supporting local producers, making their products more affordable.

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Reducing competition's effect

Trade barriers can slow down product quality improvement since there is less pressure to innovate.

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How can a country respond to trade barriers?

A country can engage in dialogue, strengthen domestic demand, find new markets, relocate production, or file a complaint with the WTO.

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WTO's main roles

The WTO is a trade forum for negotiations, monitors trade policies to ensure compliance with rules, settles trade disputes, and helps developing countries improve trade.

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What is Hong Kong's trade role?

Hong Kong acts as an entrepôt (transshipment port), re-exporting a large majority of its goods, facilitating international trade.

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Challenges facing Hong Kong's trade

Challenges include: mainland's improved logistics reducing need for transshipment, land scarcity and higher labor costs making Hong Kong's port less competitive, competition from other service exporters, and trade restrictions on China.

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Solutions for Hong Kong's trade challenges

Possible solutions include signing more Free Trade Agreements, developing new industries (goods and services), exploring new markets, and improving logistics infrastructure (e.g., expanding the airport).

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Study Notes

Trade and Specialization

  • Trading is essential for specialization
  • Specialization improves productivity as people become skilled in specific goods/services
  • Countries specialize in producing goods/services where they have advantages (climate, technology, production costs)
  • Trading allows countries to utilize resources efficiently, boosting overall productivity and output

Trade Terminologies

  • Domestic trade: within a country/region
  • International/external trade: across countries/regions
  • Trade in goods: tangible products
  • Trade in services: intangible services
  • Import: bringing goods into a country
  • Export: sending goods out of a country
  • Re-export: shipping previously imported goods to another country
  • Global trade has generally increased, especially since 2000
  • Factors contributing to the increase: lower transportation costs, lower trade barriers, China's WTO accession
  • Gains from trade: more efficient use of resources, boosting economic development, creating jobs, cheaper goods, and improved technologies.

Problems Arising from Trade

  • Market monopolies/oligopolies: reduced consumer choices
  • Unemployment: certain industries relocate to other countries

Trade Protection Policies

  • Policies: Tariffs, quotas, subsidies, foreign exchange controls, embargoes
  • Effects: increase the price of imported products, limit the amount of a product, decrease the price of locally produced goods, make importing difficult, complete ban on import/export of certain products.
  • Examples: US tariffs on Chinese EVs, EU agricultural subsidies, Russia oil embargo

Impacts of Trade Policies on Consumers

  • Tariffs cause higher prices for consumers of imported goods
  • Subsidies lead to lower prices of locally produced goods
  • Reduced competition can slow quality improvements of goods/services

Responses to Trade Protection Policies

  • High-level dialogue with countries imposing trade restrictions
  • Expanding domestic markets to reduce reliance on exports
  • Seeking membership in organizations like the WTO
  • Settling trade disputes and negotiating agreements
  • Building the trading capacity of developing countries

Trade in Hong Kong

  • Hong Kong has a free trade policy with little to no restrictions on imports/exports
  • Hong Kong is a significant global trading entity (10th largest traded goods, 21st largest in commercial services)
  • A vast majority of Hong Kong exports are re-exports (transshipment port)

Challenges Facing Trade in Hong Kong

  • Development of infrastructure in Mainland reduces Hong Kong's need
  • Limited land, higher labor costs make Hong Kong less competitive than neighboring ports
  • Competition from other economies and trade restrictions on China

Possible Responses to Challenges

  • Signing Free Trade Agreements
  • Developing new industries (goods and services)
  • Developing new markets
  • Improving logistic infrastructure (e.g., airport expansion)

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