Economic Case – International Trade
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Introduction
With the development of European Union, the world economy was highly influenced. As a member of one nation on the periphery, consider that we whether need to join the EU. Therefore, I will make a survey to build evidence and write report to convince the benefits of joining the EU.
International trade is an exchanged freely of goods and services between different countries with no barriers to this exchange. International trade would demand two assumptions; one of is any kind of no barriers will impose entry of the goods to any market; and another one is selling price would become economists price. In other words, economists price equal to producing cost plus transporting cost and normal profit. International trade has many benefits, to begin with, it can increase would-wide output. Secondly, goods and services produced at lower cost. Finally, producers can obtain benefits of economies of scale. However, domestic industries dwindital can be limitations of international trade. In addition, free trade versus protection and regional trade agreements will become hotspot in the international trade.
The Canada-European Free Trade Agreement signed by the two governments in January 2008, the agreement is aimed at eliminating all tariffs and barriers to commerce between both countries on goods. Therefore, free trade is a system of trade policy that allows traders to act and or transact without wishing. The factors of free trade include four elements which are land, labor, capital and enterprise. The agreement covered the areas of agriculture, capital, and trade in goods and services immediate tariff elimination. Finally, the function of free trade agreement is liberalizes the trade of goods and services.
Absolutes advantage refers to the production of a commodity or service, one country can in labor productivity on higher efficiency or a pre-determined quality production which takes labor costs cheaply than another country. If the both parties through exchange absolutes advantage that can be obtained interests, thus the whole world can also reallocate the limited natural resources.
For international trade the principle of comparative advantage is the original basis, which can defined as one country has a comparative advantage in producing a good if the opportunity cost of producing that good in term of other goods is lower in that country than it is in other country. In the meantime, comparative advantage assumes limited resources that are already fully utilized. Here is a simple example of comparative advantage.
Country
Labor input
baby formula(can)
tuna fish(can)
10 days
10 days
We can clearly see that UK has an absolute advantage over Peru in both commodities. UK would have a greater advantage in baby formula, which produce 1 can of baby formula it has an opportunity cost of 4/3 cans. However for Peru to produce 1 can of tuna fish it has an opportunity cost of 5/6 cans. Thus Peru has a comparative advantage in producing tuna fish because it has a cheaper opportunity cost. Assume that one country can be changes from absolute advantage to competitive advantage in terms of their specialization. The UK is an outstanding example in what knowledge industries has become much more competitive. These are building designation, computer software, financial services, pharmaceuticals and education. With development of education in England from the earliest schools in the sixth century, through the establishment of the state education system in the late nineteenth and early twentieth centuries. These industries have potential the possibility of long term growth and protect environment, meanwhile these industries depend on capital investment of heavily or cheap labor with relative demand. Government interference and exchange rates fluctuation can be influence the comparative advantages.
Protectionism is restraining trade between countries, through ways such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies.
In the economic history, the liberalisation and protectionism of times have been changed. When there is a financial mishap, Liberalisation would become protectionism; on the contrary, when protectionism turns into liberalisation, which would carry out financial policy such as devaluating legal tender.
The protectionism was founded at the beginning of the 19th century. In 1815, the British Corn Laws took effect, and the British achieved self-sufficiency in agricultural goods. Then, the Corn Laws were abolished in 1846; lead to protectionism at low ebb state. Until the First World War broke, there was a time of free trade especially in the exchange between Great Britain and its colonies and its former colonies. Liberalisation was accompanied by largely stable currency conditions in the framework of the gold standard. In 1923, hyper-inflation hit the most of the European countries and the economy was disrupted by Great Depression in 1929. With tariffs and other trade barriers increased, countries started to devalue their currencies to stimulate their exports. The world economy was created with GATT (General Agreement on Tariffs and Trade) after the Second World War.
There are many reason for protectionism, one of these is cure persistent balance of payment deficit. Due to people spend more on importing goods and services than domestic goods, lead to the balance of payment in UK occur deficit, which would be covered by borrowing or deflating the economy through taxes or through exchange control measures, import surcharges control goods quantity and an import deposit scheme to control fund. For instance, in March, 2007, China trade surplus to plunge $68.7 billion, compared with last month suddenly fell more than 70%. Trade surplus plunged because the policy of export taxes adjustment and the manufacturer of early export.
The other one is protect against dumping. Many countries in order to gain a monopoly position to eliminate the domestic competition, the government allow their dumps exporting a product to another country at a price which is below its costs of production. So dumping is regarded as an unfair competition means. For example, In April of 2006 European Union began to be imposed anti-dumping duties on leather shoes in China, and this led to a sharp decline in exports, a lot of small shoe enterprises appear zero order phenomenon in Wenzhou. Because the price of leather shoes is so lowest in China that EU began to be imposed anti-dumping duties , the price of EU about