Chapter 17 list the gains from international trade. In this chapter you will learn: The facts about Canada’s international trade, about specialization and comparative advantage, about supply and demand analysis of exports and imports, about trade barriers and their negative effects on nations’ economic well-being.
The Gains From International Trade Chapter 17 SLIDES PREPARED BY JUDITH SKUCE, GEORGIAN COLLEGE © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 In this chapter you will learn The facts about Canada’s international trade About specialization and comparative advantage About supply and demand analysis of exports and imports About trade barriers and their negative effects on nations’ economic well-being © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Chapter 17 Topics Some Key Facts of International Trade The Economic Basis for Trade Specialization & Comparative Advantage Supply & Demand Analysis of Exports & Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Some Key Facts Exports are 40% of Canadian GDP Canadian exports & imports have almost doubled as a % of GDP since 1971 In 2000, Canada had a $48.4 billion trade surplus © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Some Key Facts Principal exports: • automotive products • machinery & equipment • forestry products Main imports: machinery & equipment automotive products â 2002 McGraw-Hill Ryerson Ltd Canada Canada imports imports some some of of the the same same categories categories of of goods goods it it exports exports Macroeconomics, Chapter 17 Some Key Facts Most trade is with other advanced nations, particularly the US Improved transportation & communications, declines in tariffs, & peace have helped expand trade © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 GLOBAL PERSPECTIVE 17.1 Shares of world exports, selected nations, 2000 U.S Germany Japan U.K France Canada Italy 10 World World trade trade is is dominated dominated by by North North America, America, Japan, Japan, & & Western Western Europe Europe 15 % share © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Some Key Facts Southeast Asian economies have expanded their share of world trade Russia, the Eastern European nations, & mainland China have also increased trade © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Some Key Facts International trade links world economies International trade & finance is often at the centre of economic policy © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Chapter 17 Topics Some Key Facts of International Trade The Economic Basis for Trade Specialization & Comparative Advantage Supply & Demand Analysis of Exports & Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Effects of a Tariff Figure 17-6 price supply pD tariff revenue = (c-b)X(pT-pW) pT =imports X tariff pW imports a b q demand c quantity d Domestic Market © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Economic Impact of Tariffs Decline in consumption Increased domestic production Decline in imports Tariff revenue Indirect Effects: expansion of inefficient industries at the expense of relatively efficient ones © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Economic Impact of Quotas the same, without the tariff revenue for the government foreign firms reap the benefit of higher prices © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Effects of a Quota Figure 17-6 price supply price with quota is pQ, which again reduces imports pD pQ pW imports imports a b q demand c quantity d Domestic Market © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Net Costs of Tariffs & Quotas Consumer costs • price of imported product goes up • some consumers shift purchases from imports to higher-priced domestic goods • prices of domestic goods rise costs to consumers greatly exceed gains to producers & government © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Net Costs of Tariffs & Quotas Impact on Income Distribution low-income families affected proportionately more â 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Chapter 17 Topics Some Key Facts of International Trade The Economic Basis for Trade Specialization & Comparative Advantage Supply & Demand Analysis of Exports & Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Case FOR Protection Military Self-Sufficiency Argument Increase Domestic Employment Argument • • • • job creation from imports fallacy of composition possibility of retaliation long-run feedbacks Diversification for Stability Argument © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Case FOR Protection Infant Industry Argument Counterarguments: • • • which industries? how long? other better methods Strategic Trade Policy © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Case FOR Protection Protection Against Dumping Argument • • Driving Out Competitors Price Discrimination Cheap Foreign Labour Argument © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Case FOR Protection: A Critical Review the arguments for protection are not convincing there is compelling historical evidence that free trade has led to prosperity & protectionism has led to the opposite © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Chapter 17 Topics Some Key Facts of International Trade The Economic Basis for Trade Specialization & Comparative Advantage Supply & Demand Analysis of Exports & Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The World Trade Organization Trade liberalizations to be implemented by 2005: • • • • • tariff reductions new rules for trade in services reductions in agricultural subsidies new protections for intellectual property phasing out quotas on textiles & apparel, & replacing them with declining tariffs © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The World Trade Organization WTO has become the target of protest groups Debates about linking trade liberalization to other political & economic causes © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 Chapter 17 Topics Some Key Facts of International Trade The Economic Basis for Trade Specialization & Comparative Advantage Supply & Demand Analysis of Exports & Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 ... McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Economic Basis for Trade labour-intensive goods © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Economic Basis for Trade labour-intensive... Imports Trade Barriers The Case for Protection: A Critical Review The World Trade Organization © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Economic Basis for Trade Why nations trade? ... land-intensive goods © 2002 McGraw-Hill Ryerson Ltd Macroeconomics, Chapter 17 The Economic Basis for Trade labour-intensive goods land-intensive goods capital-intensive goods © 2002 McGraw-Hill