Chapter 33
International trade
David Begg, Stanley Fischer and Rudiger Dornbusch, Economics,
9th Edition, McGraw-Hill, 2008
PowerPoint presentation by Alex Tackie and Damian Ward
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Import and Export /GDP
in Turkey (%)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
İhracat/GSYİH (%)
İthalat/GSYİH (%)
Toplam Ticaret/GSYİH (%)
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The Exports and Imports in
the World.
Exports (%)
Imports (%)
12
14
10
12
8
10
8
6
6
4
4
2
0
2
0
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The components of the
World’s exports (20002010)
20.0
15.0
10.0
5.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-5.0
-10.0
-15.0
-20.0
Agricultural products
Fuels and mining products
Manufactures
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World Exports by
Commodity Groups, 2010
2500
2000
1500
1000
500
0
5
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Exports and Imports in
Turkey (2000-2011)
100
80
60
40
20
0
-20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-40
-60
-80
Dış Ticaret Dengesi (Milyar $)
İhracatın İthalatı Karşılama Oranı (%)
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Turkey’s Exports by
Region
80.0
70.0
60.0
50.0
40.0
30.0
20.0
2000
10.0
2011
0.0
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The Turkey’s Exports and
Imports by Country in 2010
(Percentage of Total Trade)
İthalat (%)
İhracat (%)
14.0
12.0
12.0
10.0
11.6
10.1
10.0
9.5
8.0
9.3
8.0
6.0
6.4
5.7
6.6
6.0
5.5
5.3
5.3
4.0
4.0
2.0
2.0
0.0
0.0
Rusya
Almanya
Çin
ABD
İtalya
8
Almanya İngiltere©The
İtalya
Fransa
Irak 2008
McGraw-Hill
Companies,
Exports to the GDP (%)
90
80
70
60
50
40
30
20
10
0
Belçika
İtalya
Japonya İngiltere Amerika
1967
1980
1991
2005
Fransa
Hollanda
Türkiye
2010
9
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Some important issues
• Raw materials prices
– Less-developed countries (LDCs) have claimed exploitation
by industrial countries
• e.g. by buying raw materials cheaply & selling manufactures
dear
• Manufactured exports from LDCs
– some LDCs have had success in exporting manufactures
– leading to complaints that jobs are under threat in the
industrial countries
• Trade disputes between industrial countries
– In some countries, established producers of certain goods
are being undercut by efficient modern producers
– especially from Japan & East Asia
– should such exports be restricted?
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Comparative advantage
• Trade offers benefits when there are
international differences in the
opportunity cost of goods.
• Opportunity cost of a good
– the quantity of other goods sacrificed to
make one more unit of that good
• The law of comparative advantage
– states that countries should specialise in
producing and exporting the goods that
they produce at a lower relative cost than
other countries.
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The source of comparative
advantage
• An important difference between countries is
in factor endowments
• which will be reflected in different relative
factor prices
– e.g. if the UK has relatively abundant capital but
relatively scarce labour as compared with India,
– then the UK would tend to specialise in capitalintensive goods,
– and India would tend to specialise in labour-intensive
products
• Comparative advantage may also reflect a
relative advantage in technology
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Gainers and losers
• Countries may gain from
specialisation and trade
– but not all countries may gain equally
• Commercial policy
– is government policy that influences
international trade through taxes or
subsidies
• e.g. tariffs
– or through direct restrictions on
imports and exports.
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The economic effects of a tariff
DD and SS show the domestic
demand and supply for a good.
SS
If the world price is Pw,
and there is free trade,
domestic firms supply Qs
domestic demand is Qd
Pw + T
Pw
DD
Qs Qs '
Qd' Qd Quantity
and the difference is imported.
A tariff can stimulate domestic
supply and restrict imports.
At a domestic price Pw + T,
where T is the size of the tariff.
Domestic demand falls to Qd', domestic supply rises to Qs'
and imports fall.
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The welfare costs of a tariff
The tariff leads both to
transfers and net social
losses.
SS
The government raises
revenue – i.e. there is a
transfer to the government
Pw + T
Pw
DD
Qs Qs '
and there is a transfer in
the form of extra profits to
producers.
Qd' Qd Quantity
There is a social cost from production inefficiency, given that the
good could be imported at Pw, and a loss of consumer surplus.
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Tariffs
• The deadweight burden of a tariff
suggests that society suffers from this
method of restricting trade.
• This is the case for free trade.
• Tariffs have fallen substantially under
the GATT
– General Agreement on Tariffs and Trade
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The case for tariffs – good
arguments
• Optimal tariff
– a first-best argument
– only valid where the importing country is
large enough to affect the world price.
• This policy fulfils the principle of
targeting
– which says that the most efficient way to
attain a given objective is to use a policy
that influences that activity directly.
– Policies that attain the objective, but also
influence other activities are second-best,
because they distort those other activities.
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The case for tariffs – secondbest arguments
• Way of life
– an attempt to preserve ‘traditional’ ways
– a production subsidy would be better
• Suppressing luxuries
– an attempt to curb consumption patterns of the rich in a
poor society
– better achieved by a consumption tax
• Infant industries
– an attempt to nurture new activities via learning by doing
– a temporary production subsidy probably better
• Revenue
– tariffs raise government revenue
– but there are better ways
• Cheap foreign labour
– a non-argument – denies benefits of comparative
advantage
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Other commercial policies
• Although tariff rates have fallen
under GATT, there has been a
proliferation of other trade
restrictions
– quotas
– non-tariff barriers
• administrative regulations that
discriminate against foreign goods
– export subsidies
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