Trade and Specialization Overview

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

Trends in Global Trade

• 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)