Theory of international trade

The Theory of Protection

1. Theory of international trade

2. Tariffs

3. Quotas and other non tariff trade barriers

3.1. Quotas

3.2. Subsides

3.3. General equilibrium analysis

3.4. Export subsidies

4. Voluntary Export Restraints

5. Technical, Administrative, and Other Regulations

6. International Cartels

7. Dumping

Theory of international trade

In our exposition of the theory of international trade, we started with countries those were initially operating as closed economies. We threw open these isolated countries and allowed them to trade freely with each other, and then we examined and analyzed the economic effects of trade. An important conclusion of this analysis was that countries, if not all individuals in the countries, generally gain from trade. When each country specializes in products in which it has a comparative advantage, exporting them in exchange for imports of other products in which it has a comparative disadvantage, the result is a gain in economic welfare.

This conclusion has long been a major tenet of trade theory. One of Adam Smith's principal objectives in his Wealth of Nations was to overturn and destroy the mass of mercantilist regulations that was hamstringing international trade. He argued that elimination of artificial barriers to trade and specialization would lead to an increase in real national income David Ricardo shared this belief, as have most economists in subsequent generations.

This view has always been debated, however. Even if some trade is better than no trade, it does not necessarily follow that free trade is the best of all Therefore we now need to turn the question around the other wav Starting from a position of full free trade, what is the effect of introducing an obstacle to, or restriction on trade? Can a nation's welfare be improved by imposing tariffs or other barriers to trade, not necessarily to eliminate trade but at least to reduce it below the free-trade level?

Each country specializes in which it has a comparative advantage, exporting them in exchange for imports of other products in which it has a comparative disadvantage – the result is a gain in economy.

But if some trade is better than no trade it does not necessarily follow the thought that free trade is the best of all.

Table

A Catalogue of Some National Trade Policy Tools

	Tax or Subsidy	Quantitative Restriction
On Imports	Tariffs Special cases: countervailing duties, antidumping duties	Import quotas Import special cases: import embargoes, restrictions on government purchases from foreign supplies
On Exports	Export taxes and export subsidies, including dumping as a form of export subsidy	Export quotas Important cases include export embargoes, state export monopolies

Types of barriers:

1. Tariff

In the past, tariffs (taxes on imports or, occasionally on exports) were the dominant form of government regulation of trade, but that has changed. As average tariff levels have fallen owing to the successful completion of GATT (General Agreement on Tariffs and Trade) rounds, governments have sought ways to restrict trade without violating commitments to lower tariffs. As a result, non tariff trade barriers, widely known as NTBs, have proliferated and have become the most active means of interference with trade.

2. NTB

A non tariff trade barrier is any government policy, other than a tariff, which reduces imports but does not similarly restrict domestic production of import substitutes.

2.1 Quotas, which are limits on the physical volume of a product that may be imported during a period of time, are the most important NTB, but there are many others. Their range is limited only by the imagination of government officials seeking ways to restrict imports without violating GATT commitments.

Tariffs

U.S. tariffs raise the price of imported goods by 5%. Probably the most infamous tariff in U.S. history is the Smoot-Hawley Tariff of 1930, which raised tariffs on imported goods an average of 60%. It was passed in response the Great Depression in the U.S. and to protect American jobs. It did not work. Other countries responded with similar tariffs. As a result of these trade wars, international trade plummeted from $60 billion in 1928 to $25 billion in 1938, unemployment worsened, and the international depression deepened. These effects of the tariff convinced many, if not most, economists that free trade is preferable to trade distractions.

Дата добавления: 2015-11-14