Contents 1 Why do nations trade? What are some of the major arguments for and against an open Trading System? What are the Consequences (Benefits and Costs) of International Trade (present: at individual | Firms | Nations)? 2 2 What were the Mercantilist’s views on trade ? What are the new contributions of Mercantilist’ views on Trade? What is the weak point of Mercantilism ? Discuss ? 3 3. How were the Adams Smith (Theory of absolute advantage)’s views on trade? 4 4. In that way was Ricardo’s law of Comparative Advantage superior to Smith’s Theory of Absolute Advantage ? 10 5 What are the factors that determine how countries will specialize in international trade? What are the Sources of Comparative Advantage? 13 6 What is meant by laborintensive commodity ? Capitalintensive commodity ? What is meant by capitalabundant nation? What does the Heckscher and Ohlin theory postulate ? 14 Question 8: what is primary function of tariffs in industrial nation? 15 9 What is an import Quota ? How are they similar to and different from the effects of an equivalent import tariff ? How does the revenue effect of an import quota differ from that of a tariff ? 16 10 What is meant by dumping? What are the different types of dumping? Why is dumping undertaken? What conditions are required to make dumping possible? Why does dumping usually lead to trade restrictions? Analyze one case study many government have used: Vietnam for case of Catfish or shrimp export, China with steel industry. 17 Question 11: Why do nations subsidize exports? 18 12. Do you agree or don’t agree with Protectionism? What are the benefits and arguments against Protectionism? 19 Types of Protectionism 21 13. What are the main drivers of Globalization? What are the benefits and challenges of Globalization? 23 14 what is the globalization? Describe the benefits and challenges of current wave of globalization for VietNam’s economy 26 15 What are the benefits and challenges of ASEAN Economic Community ? Describe the opportunities and economic benefits of Vietnam in the AEC. 27 16. Present the different level of Economic Integration? What is the advantage and benefits of FTA, and Custom Union for one country? What are the principles of WHO and how it differ from a FTA? 30
International Economic Question: Contents 1/ Why nations trade? What are some of the major arguments for and against an open Trading System? What are the Consequences (Benefits and Costs) of International Trade (present: at individual | Firms | Nations)? .2 2/ What were the Mercantilist’s views on trade ? What are the new contributions of Mercantilist’ views on Trade? What is the weak point of Mercantilism ? Discuss ? .3 - How were the Adams Smith (Theory of absolute advantage)’s views on trade? 4 - In that way was Ricardo’s law of Comparative Advantage superior to Smith’s Theory of Absolute Advantage ? 10 5/ What are the factors that determine how countries will specialize in international trade? What are the Sources of Comparative Advantage? 13 6/ What is meant by labor-intensive commodity ? Capital-intensive commodity ? What is meant by capital-abundant nation? What does the Heckscher and Ohlin theory postulate ? 14 Question 8: what is primary function of tariffs in industrial nation? 15 9/ What is an import Quota ? How are they similar to and different from the effects of an equivalent import tariff ? How does the revenue effect of an import quota differ from that of a tariff ? 16 10/ What is meant by dumping? What are the different types of dumping? Why is dumping undertaken? What conditions are required to make dumping possible? Why does dumping usually lead to trade restrictions? Analyze one case study many government have used: Vietnam for case of Catfish or shrimp export, China with steel industry .17 Question 11: Why nations subsidize exports? .18 12 Do you agree or don’t agree with Protectionism? What are the benefits and arguments against Protectionism? .19 Types of Protectionism 21 13 What are the main drivers of Globalization? What are the benefits and challenges of Globalization? .23 14/ what is the globalization? Describe the benefits and challenges of current wave of globalization for VietNam’s economy .26 15 / What are the benefits and challenges of ASEAN Economic Community ? Describe the opportunities and economic benefits of Vietnam in the AEC .27 16 Present the different level of Economic Integration? What is the advantage and benefits of FTA, and Custom Union for one country? What are the principles of WHO and how it differ from a FTA? 30 1/ Why nations trade? What are some of the major arguments for and against an open Trading System? What are the Consequences (Benefits and Costs) of International Trade (present: at individual | Firms | Nations)? Nations Trade with others because: (Reasons countries trade goods with each other include) - Differences in the technology used in each country (i.e., differences in each country’s ability to manufacture products) - Differences in the total amount of resources (including labor, capital, and land) found in each country - The proximity of countries to each other (i.e., how close they are to one another) Specialize in the manufacture and export of products can be produced most efficiently in that country Import products can be produced more efficiently in other countries A/ Major arguments for Free Trade: All countries can benefit if each country specializes in production those goods it can produce best and satisfy their other wants and needs by trading for them - Free trade can raise aggregate economic efficiency and aggregate economic welfare - Free trade will benefit a country even if it is less efficient than all other countries in every industry - Free trade would cause world resources to be utilized most efficiently, maximizing world welfare Import products can be produced more efficiently in other countries B/ Major arguments Against Free Trade (Protectionism): Governments restrict free international trade in order to protect domestic industries from foreign competition The restriction of international trade is called protectionism Supporters of "protectionist" laws claim that keeping out foreign goods will - save jobs, - give ailing domestic industries a chance to recover and prosper, - and reduce the trade deficits Benefits and Costs of International Trade A/ Benefits of International Trade (Give more examples) - Individuals + Consumption of better-quality products with lower prices + Consumption of diverse products - Firms + Greater business opportunities + Greater profit - Nation + Fast economic growth + Job creation B/ Cost of International Trade: - Individuals + Loss of jobs employed in the less competitive industries - Firms + Face stronger competition and may lose competitive edge - Nation + Greater income disparity + Possibility of environmental degradation in developing countries + Greater vulnerability to foreign shocks 2/ What were the Mercantilist’s views on trade? What are the new contributions of Mercantilist’ views on Trade? What is the weak point of Mercantilism? Discuss? a/ The Mercantilist’s views on trade: Economic philosophy in 17th and 18th centuries, in England, Spain, France, Portugal and the Netherlands - Export surpluses brought inflow of gold and silver - Trade policy was to encourage exports and restrict imports - One nation gained only at the expense of another Mercantilism suggests that it is in a country’s best interest to maintain a trade surplus to export more than it imports To ensure that a country exported a lot and imported only a little, the mercantilists were in favor of high tariffs Mercantilism advocates government intervention to achieve a surplus in the balance of trade b/ New contributions of Mercantilist: To recognize the importance of International Trade Mercantilism suggests that countries | government should design policies that lead to an increase in their holdings of gold and silver This was usually done by increasing exports and limiting imports This economic philosophy was used by Europeans from about the 1500s to the late 1700s To ensure that a country exported a lot and imported only a little, the mercantilists were in favor of high tariffs Mercantilism advocates government intervention to achieve a surplus in the balance of trade c/ The weak point of Mercantilism: - The key problem with the mercantilist view is that it views trade as a zero-sum game, where if one country benefits the other must lose As an economic philosophy, mercantilism is flawed Mercantilism weakens country in long run; enriches only a few - In 1770s, Adam Smith argued that import restrictions would reduce the gains from specialization and make a nation poorer He used absolute advantage to explain the benefits of trade - How were the Adams Smith (Theory of absolute advantage)’s views on trade? - How were gains from trade generated? - What policies did Adam Smith advocate in International Trade? - What did he think was the proper function of government in the economic life of the Nation? * View on trade: "It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” (Adam Smith) Specialization and trade among regions and countries are based upon the same principle as among individuals - Reasons for Trade: When a country has the best technology for producing a good, it has an absolute advantage in the production of that good Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it According to Smith, countries should specialize in the production of goods for which they have an absolute advantage and then trade these goods for the goods produced by other countries In 1770s, Adam Smith argued that import restrictions would reduce the gains from specialization and make a nation poorer He used absolute advantage to explain the benefits of trade - Definition “absolute advantage”: The advantage in the production of a product enjoyed by one country over another when it uses fewer resources to produce that product than the other country does Absolute advantage is when someone is the best at doing something: America is the best at producing entertainment – Lance Armstrong is the best cyclist - A country: Should specialize in production of and export products for which it has absolute advantage; import other products Has absolute advantage when it is more productive than another country in producing a particular product - Example: Suppose country A and country B produce wheat, but that A's climate is more suited to wheat and its labor is more productive Country A will therefore produce more wheat per acre than country B and use less labor in growing it and bringing it to the market Country A thus enjoys an absolute advantage over country B in the production of wheat - Example: If US uses 15 hours of labor to produce one unit of tomatoes and Mexico uses 10 hours to produce the same amount of tomatoes, Mexico has absolute advantage in the production of tomatoes - Example: Source of Advantage – Canada is efficient in growing wheat, inefficient in growing bananas – Nicaragua is efficient in growing bananas, inefficient in growing wheat – Canada has absolute advantage in wheat, Nicaragua has absolute advantage in bananas – Mutually beneficial trade can take place if both countries specialize in their absolute advantage - Principle of absolute advantage: A two-nation, two-product world International specialization and trade: One nation - absolute cost advantage in one good & The other nation - absolute cost advantage in the other good Each nation must have a good that it is absolutely more efficient in producing than its trading partner: Import goods – if absolute cost disadvantage & Export goods – if absolute cost advantage - Historical development of modern trade theory: * Gains from trade generated Trade theory: That there are gains from trade is probably the most important insight in international economics Countries selling goods and services to each other almost always generates mutual benefits When a buyer and a seller engage in a voluntary transaction, they are both usually better off: Norwegian consumers import oranges that they would have a hard time producing in Norway A country that is the most (least) efficient producer of everything gain from trade: Countries use finite resources to produce what they are most productive at (compared to their other production choices), and then trade those products for what they want to consume Countries can specialize in production, while consuming a great diversity of goods and services through trade Trade benefits countries by allowing them to export goods made with relatively abundant resources and import goods made with relatively scarce resources When countries specialize, they may be more efficient due to the larger scale of production Countries may also gain by trading current resources for future resources (international borrowing and lending) and from international migration Trade is predicted to benefit countries as a whole in several ways, but trade may harm particular groups within a country: International trade can harm the owners of resources that are used relatively intensively in industries that compete with imports Trade may therefore affect the distribution of income within a country Comparative advantage - A nation can achieve consumption levels beyond what it could produce by itself – Countries’ comparative advantage comes from: Accumulated Physical and Human Capital Difference in cultures & social institutions Dynamic comparative advantage – “learning by doing” which develops industry specific expertise “Infant Industry” argument for tariffs & subsidies Difference in natural resources, topography, climate may play an initial role – but acquired advantages dominate differences in initial conditions – Most sources of gain are analogous to how individuals gain from trade Comparative advantage focuses on Differences in ability to produce goods – Other sources of gain, not in this model Differences in tastes Economies of scale Technological change and governmental policies Other sources of the gain from trade o Productivity (most productive firms expand and export) o Returns to scale (small countries can support larger firms) o Competition (monopolies in small countries lose market power) o Variety (buyers can access more choices) o Supply chains (firms source parts from cheapest sources) o Technology (producers access foreign technologies) * Adam Smith’s policies advocate in International Trade - Adam Smith and other classical economists advocated policy of laissez-faire, or minimal government interference with economic activity Free trade would cause world resources to be utilized most efficiently, maximizing world welfare - Smith was in favor of free trade He derived his support for free trade among nations by basing it on the obvious desirability of trade among individuals: "It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy" According to Smith, free trade expands the extent of the market and, thereby, allows greater division of labor Free trade also increases productivity by allowing countries to specialize in what they well - The Invisible Hand Consumer sovereignty and business competition are the key components of Smith’s argument that the pursuit of individual self-interest leads to an excellent social outcome Consumer sovereignty ensures that consumer needs determine what gets produced Business competition ensures that prices are driven down to unit cost