Unilateral track
-new trade opportunities-destroy old ones-gain new ones
Example.
Estonia entering Europe
Unilateral agreement with Ukraine, rice
After entering EU--> EU trade agreements--> End on unilateral agreement
-Estonian relationship with Ukraine got worse
Example 2
French bottles cheaper in Estonia than domestic producers
--> Economies of scale--> Larger economies can produce with lower unit cost
WTO
-a weaker multilateral trading system
--> EU, USA, Japan--> historically if they had mutual agreement--> votes trough
-India, China Brazil
-Intellectual properties, good for Microsoft, Hollywood--> not good for developed countries
---> TRIPS
-Behind the curtains, bigger economies press on the decisions
Example
Cars exported from Japan>USA car manufacturing struggling
The USA brought voluntary Export quota agreement
-> Japan forced to undersign under circumstances something ''worse'' could happen
->Japan chose to limit its exports, USA car manufacturing benefits
->Japan cars built in the USA, Subaru struggling in keeping up with the demand as they built the cars in Japan--> Export limits limit their possibility to supply and the increasing demand
-Minilaterialism
-WTO, IMF and World Bank criticized by Opponents of globalization and corporations. Developing countries for dominance by US, rich countries, and corporations
--> Scholars for institutional flaws IMF: has imposed misguided policies World Bank: Wates resources on corrupt elites, WTO: Dominated by rich countries, corporations
-World bank more aid organization than bank
Why countries trade
-price difference
-Autarky price--> completely protected markets--> no trade
FREE TRADE
Exports=imports,
country with lower price exports-> prices rise-> suppliers grain
a country with higher price imports-> prices go down->demanders gain, suppliers lose
======>>> WORLD GAINS
Prices
-determined by the
productivity of labor, Price of labor (w=wage, Exchange rate
-since w and W are larger commons to all sectors
--> main determinant of how individual sectors trade is productivity
Adjustment mechanism
-if all of a country's prices too high for export
--> exchange rate will fall or wages will fall
Gains of trade never equal--> Theory that even though one of the participants is a loser, in absolute they all gain as a result of wider possibilities (modern economics theory)
Ricadrion model
One factor of production model: Labor
-Absolute advantage vs comparative advantage, lawyer & secretary example
-comparing at what you do best instead at comparing with everything you do (microeconomic theory)
Sources of comparative advantage
-larger firms dominating digital markets in EU--> imperfect competition
The Heckscher-Ohlin Model
-Factors proportions model
-Comparative advantage determined by factor endownments: production facotrs--> some countries focused on one individual factor--> China cheap Labour, other... cheap land...
-Factor intensities: Agriculture--> requiring land= land intensive--> requiring cheap labour=labour intensive, need finding cheap labour --> requiring capital
-Two differences drive trade in H-o model
Countries differ in endownments of factors
-labour,capital,land,skill (human capital).... resources
2. Industries differ in factor intensities
-Countries export good that use abundant factors
Intuitition
--abundant factors are cheap (in Autarky=closed markets)
--> factors are perfectly mobile within a country accross industires, same resource can be used in energyu production or car manufacturing
Effects of Trade
according to H-O theory
Trade causes: Improts decrease, exports grow--> Factors to move industires--> towards export sector
For factor prized: Price equalization, China labour prices increase,>USA decrease
Pareto efficient outcome: Thinking about also what happens to the ones left outside of welfare.
Monopoly-one seller Oligopoly- few selles Monopolistic competition- many sellers but each with some market power
Oligopoly
-in many international markets
The new trade theory
-Subsidies making each contributor coming to the markets, even though would be negative profit without subsidies
----> Boeing and Airbus example
---> Boeing goes to USA government, Airbus enters markets as a result of subsidies
---> USA gov subsidizes Boeing
---> Case taken to WTO court
Tariffs
Ad valorem: % of value
Specific: Dollars per unit