ECON 2100 Lecture Notes - Lecture 10: Economic Surplus, General Agreement On Tariffs And Trade, World Trade Organization

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Published on 5 Oct 2016
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Chapter 9- Application- International Trade Cont.
- Trade Agreements
They can help members to avoid trade wars.
A large country may gain from a tariff, but only if other large trading partners don’t retaliate.
A country can liberalize trade with
1. Unilateral reductions in trade restrictions
2. Multilateral agreements with many other nations
3. Bilateral agreements with several other nations
General Agreement on Tariffs and Trade (GATT), 1947
GATT→World Trade Organization (WTO) in 1995
NAFTA-North American Free Trade Agreement
Quotas: quantity restriction on imports
Effect is similar to tariffs if quota rents are obtained by home firms or governments
- Trade Promotion Measures
Agricultural Subsidies: the primary reason is political; due to strong influence of agriculture
sectors, especially large agriculture businesses.
Costs of agricultural subsidies:
1. Raise domestic producer surplus.
2. Reduce consumer surplus due to higher food prices in the exporting country.
3. Net loss for an exporting country, especially for a large country due to reduced international
prices.
- Arguments for Restricting Trade
The Job’s Argument-Trade destroys jobs in industries that compete with imports.
Total unemployment does not rise as the number of imports increase because the number of
jobs is offset by the export industries instead.
The National Security Argument- An industry vital to national security should be protected from
foreign competition, to prevent dependence on imports that could be disrupted during wartime.
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