International Trade Lecture Notes

Overview of Global Trade

• Global network of ships, trucks, and planes facilitating movement of goods.
• Import and export activities among countries.
• Goods include manufactured items and agricultural commodities.
• Services are intangible goods such as advertising and telecommunication.

Complexity of Trade Networks

• Global trade involves intricate supply chains.
• Products are sourced, assembled, packaged, and sold worldwide.
• Example: A phone may have parts produced, processed, assembled, and packaged in different countries before reaching the consumer.

Historical Context

• Mercantilism (Pre-19th century):
  • Focus on self-sufficiency.
  • Maximize exports, minimize imports, increase gold reserves.
  • Use of tariffs to discourage imports.
  • Created barriers to international trade.
• Classical Economists (Late 18th century):
  • Promoted trade based on comparative advantage.
  • Encouraged specialization to innovate and create new products.
  • Shift from gold to productivity as a measure of economic power.

Modern Trade Practices

• Comparative Advantage:
  • Countries benefit by focusing on what they can produce efficiently.
  • Example: Costa Rica exports pineapples and coffee; Germany exports cars and computers.
• Gross Domestic Product (GDP):
  • Measures productivity and economic output.

Development of International Trade Organizations

• Post-World War II: Creation of General Agreement on Tariffs and Trade (GATT).
• 1995: Formation of World Trade Organization (WTO).
  • Expanded trade to include services and intellectual property.
  • Provides a platform for resolving trade disputes.

Challenges in International Trade

• Comparative Advantage Issues:
  • Countries need to adjust to comparative advantages.
• Criticism of WTO:
  • Fails to protect wages (e.g., U.S. vs. China trade practices).
  • Developing countries face challenges (e.g., agricultural subsidies).
  • Changes require consensus among 164 member countries.

Regional Trade Agreements

• NAFTA (1994):
  • Facilitated trade between the U.S., Mexico, and Canada.
  • Served as a model for other agreements.

Impact of International Trade

• World trade volume increased significantly from 1990 to 2015.
• Benefits:
  • Cheaper and better goods and services.
  • Job creation and strengthened international relations.
• Downsides:
  • Local firms struggle to compete.
  • Creation of winners and losers in the global market.

Policy Challenges

• Policymakers need to support disadvantaged groups.
• Training for new jobs to adapt to trade-related changes.
• Ensuring the benefits of trade reach everyone.