Catfish Vietnam vs U.S.
- Vietnamese advantage:
o winterless climate allows fish to grow faster
o lack of restrictions on the discharge of fishpond waters (greater production
density)
o low labor rates
- U.S. fought back by saying imported catfish cant be called catfish, but there are not
strict menu laws, or grocery labels. So imported catfish was still labeled catfish
o The name change could be an advantage because the connotation of catfish
(scavenger)
- Add import tariffs (antidumping taxes)
- Farm bill singled out foreign “catfish-like” farms
Governmental Influence on Trade
- Protectionism: governmental actions to influence international trade
o Despite free-trade benefits, governments intervene in trade to attain economic,
social or political objectives
- Import restrictions to create domestic employment
o may lead to retaliation by other countries
o affect large and small economies differently
o reduce import handling jobs
o may decrease jobs in another industry
o may decrease export jobs because of lower incomes abroad
Government Economic Rationales for Trade Intervention
- Infant industry argument: government should protect emerging industries from foreign
competition by guaranteeing it a large share of the domestic market until it can
compete on its own.
o Production becomes more competitive overtime because of increased
economies of scale 7 greater work efficiency
o Assumes early operating costs are too high to compete in world market, cost
reduction overtime through economies of scale
 May never fall enough to compete internationally
- Industrialization argument: although a country may develop an inefficient and nonglobally competitive industrial sector, it will achieve eco- nomic growth by enabling the
unemployed and underemployed to work in industry.
o Import restrictions  spur industrialization  may increase FDI
o Terms of trade: the quantity of imports that a given quantity of a country’s
exports can buy
 May deteriorate because demand grows slower for primary than
manufactured, production cost savings for primary products will be
passed on to consumers.
o Import substitution: restricting imports to boost local production of products
that would otherwise be imported
 Industrialization emphasizes products to sell domestically OR products to
export
 Aim either to raise or lower exporter’s price
- Balance of Trade adjustments: if trade deficit, to balance government may act to
reduce imports and encourage exports
o Depreciate or devalue currency
o Fiscal or monetary policy to bring about lower price increases
 Foreign essentials and luxury products more expensive
- Comparable access argument: industries are entitled to the same access to foreign
markets as foreign industries have to theirs
o cost reduction results from economies of scale, need equal access to
competitors market to gain enough sales to be cost competitive
- import restriction threats to change policies must be believable & involve products that
are important to other countries.
- Export restrictions may
o raise world prices
o require more controls to prevent smuggling
o be ineffective for digital products
o lead to product substitution or new ways to produce the product
o keep domestic prices down by increasing domestic supply
o give producers less incentive to increase output.
- Dumping: exporting below cost or below home country price
o Exporters encourange to improve employment or introduce to a new market at
low price
- Optimum-tariff theory: a foreign. Producer lowers it export price when an importing
country places a tax on its products.
o If successful: shifts revenue to an importing country
o Is difficult to predict
o May cause lower worker income in developing countries
Government Noneconomic Rationales for Trade Intervention
- Essential-industry argument: nations apply trade restrictions to protect crucial domestic
industries so they are no dependent ofn foreign supplies during hostile political periods
o Determine which are essential
o Consider costs and alternatives
o Consider political and economic consequences
 US subsidizes domestic silicone production for computer chip makers
aren’t dependent on foreign suppliers
-
Spheres of influence: giving aid and credit to and encouraging imports from, countries
that jpin a political alliance or vote a preferred way within international bodies.
Preserving national culture: government prohibits exports of art and historical items
deemed part of their national heritage.
Major Instruments of Trade Control
- Tariffs: (duty) levied on a good shipped internationally
o on goods entering, leaving, or passing through a country
o for protection or revenue
 generate gov revenue
o on a per-unit basis, a value basis, or both.
 Per unit: specific duty
 % of item value: ad valorem duty
 Collected by exporting countries: export tariffs
 Goods passing through: transit tariffs
 Importing country: import tariffs
- Subsidies: direct assistance to boost their competitiveness
o there is little agreement on what a subsidy is
 except agriculturally
o but agricultural subsidies are difficult to dismantle
o especially to overcome market imperfections because they are least
controversial.
- Quota: limits the quantity of a product that can be imported or exported in a given time
frame
o import quotas raise prices because it limits sales and there is little incentive to
compete on price
o export quotas to provide domestic customers a sufficient supply of goods at a
low price, prevent depletion of natural resources, or raise prices abroad by
restricting foreign supply
o be on imports or exports
o set the total amount to be traded
o allocate amounts by country
o be negotiated as a voluntary export restraint (VER)
 Country A asks Country B to voluntarily reduce its companies’ exports to
Country A. B agrees or A imposes tougher trade restrictions
o prohibit all trade when it is an embargo.
- “Buy Local” rules: governments give preference to domestic production in their
purchases
- Other types of trade barriers include
o arbitrary standards
o importing, exporting, and currency licensing
 government permission before transacting a trade
o administrative delays
o reciprocal requirements
-
-
o service restrictions.
Four main reasons why trade in services is restricted are
o Essentiality
o preference for not-for-profit operations
o different professional standards
o immigration
When facing import competition, companies can
o move abroad or find foreign supplies
o seek other market niches
o make domestic output competitive
o try to get protection
Economic Integration: the political and monetary agreements among nations and world regions
in which preference is given to member countries
Approaches:
o Global Integration (WTO)
o Bilateral Integration (e.g U.S. – Australia FTA)
o Regional Integration (e.g, USMCA, EU, ASEAN)
Types of agreements
o Free Trade Agreements (RTA) (ex. USMCA, there is over 300)
o Customs Union: countries get together and agree to charge the same tariffs to
another country (Andean Community: Bolivia, Ecuador, Peru)
o Common market (free mobility of production factors in addition to RTA and
Custom Union)
o Commodity Agreement (EPEC)
USMCA: United States, Mexico, Canada Agreement
- Succeeds NAFTA from 1994
o The biggest difference between the two is about fair labor practices
o Signed in November 2018
o Went into effect July 1, 2020
o FTA, not customs union
o Elimination of tariff and nontariff barriers, harmonized trade rules, reduces
restrictions on services and investment, labor practices, dispute settlement
process
o Rules of Origin and Regional Content
EU (regional integration and customs union)
- (1927) Currently 27 members
- Free movements of goods, services, capital, and people
- Common external tariff (Customs Union)
- Common currency (Euro in 19 countries)
-
No border control
Bilateral agreements with non-EU countries
Antitrust Investigations
7 Governing Bodies
World Trade Organization (WTO)
- 1995, 164 members
- Used to be GATT (1947)
- To abolish quotas and reduce tariffs
- “trade without discrimination” open the market equally to members within WTO
- Aticle XXIV: can form customs unions and free trade agreements (FTA) as long as other
members are not treated worse
- Most Favored Nation Clause: agree to reduce a tariff, extended to every other member
country
o US Trade laws call it PNTR (Permanent Normal Trade Relations)
- Panels provide a dispute settlement mechanism: charges, appeals, ruling
-
Static effects: as soon as a 2 or more countries enter a trade agreement, resources shift
from one country to another, no additional economic activity
-
o Trade barriers drop, companies that were protected can lose out. Production
shifts to more efficient firms, FDI can increase (investment in less efficient
countries to more efficient countries)
o Trade increases from members in the agreement, and trade decreases for
external countries  other countries may invest (FDI) into countries who are a
part of the agreement
Dynamic effect: growth in market, businesses are able to create greater economies of
scale, there is more economic activity than before
o Companies will try to integrate and standardize for members within agreement
to achieve better economies of scale  cost lowers  price lowers  more
access to consumers
(Group 5 presented for soybean and target break out)