Free Trade and Protectionism

1. Free Trade and Protectionism IB Economics

2. WORLD TRADE ORGANIZATION Supervise and liberalize international trade

3. WORLD TRADE ORGANIZATION 160+ member states Supervise and liberalize international trade

4. WORLD TRADE ORGANIZATION Established 1 January 1995 160+ member states Supervise and liberalize international trade

5. WTO FUNCTIONS

6. WTO FUNCTIONS Administer WTO trade agreements

7. WTO FUNCTIONS Forum for trade negotiations Administer WTO trade agreements

8. WTO FUNCTIONS Handle trade disputes Forum for trade negotiations Administer WTO trade agreements

9. WTO FUNCTIONS Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements

10. WTO FUNCTIONS Provide technical assistance and training for developing countries Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements

11. WTO FUNCTIONS Cooperate with other international organizations Provide technical assistance and training for developing countries Monitor national trade policies Handle trade disputes Forum for trade negotiations Administer WTO trade agreements

12. DOHA DEVELOPMENT AGENDA

13. DOHA DEVELOPMENT AGENDA Agriculture, services trade, market access for nonagricultural products, and intellectual property issues

14. DOHA DEVELOPMENT AGENDA

15. Gains from International Trade • Lower prices • Greater choice • Differences in resources • Economies of scale • Increased competition • Source of foreign exchange

16. S(Domestic) P W P ePrice of wheat ($ per ton) S(World) D Q1 Qe Q2 Quantity of wheat (000s tons)

17. S(Domestic) P W P ePrice of wheat ($ per ton) S(World) D Q1 Qe Q2 Quantity of wheat (000s tons)

18. S(Domestic) P W P ePrice of wheat ($ per ton) S(World) D Q1 Qe Q2 Quantity of wheat (000s tons)

19. Arguments for Protectionism • Protecting domestic employment • Protecting the economy from low-cost labor • Protecting an infant (sunrise) industry • Avoid the risk of over-specialization • Strategic reasons • Prevent dumping • Protect product standards • Raise government revenue • Correct a balance of payments deficit

20. Government Intervention in International Trade • Tariffs • Subsidies • Quotas • Regulations to limit trade

21. S(Domestic) P W P ePrice of wheat ($/ton) Pw+t S(World) + tariff S(World) D Q1 Qe Q2 Quantity of wheat (000s tons) Q3 Q4 Increase domestic Decrease domestic production consumption

22. Consumer Surplus Q1 Consumer SurplusBefore & After Tariff Price S PW + T a b c d PW D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d

23. Q1 Producer Surplus Before & After Tariff Price S PW + T a PW D Quantity Q3 Q4 Q2 Change in producer surplus = + a

24. Consumer Surplus Q1 Loss in Total Surplus = ????? Summarize to this Point … Price S PW + T a b c d PW D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d Change in producer surplus = + a = (b + c + d)

25. T · (Q4 – Q3) Consumer Surplus Q1 Net Change in Society Wealth with Tariff Price S Net change in welfare? Net loss: b + d PW + T “Deadweight loss” a b c d PW D Quantity Q3 Q4 Q2 Change in consumer surplus = - a - b - c - d Change in producer surplus = + a + c Change in government revenue =

26. S(Domestic) P W P ePrice of wheat ($/ton) Pw+t S(World) + tariff S(World) D Q1 Qe Q2 Quantity of wheat (000s tons) Q3 Q4 a b c d e f g h i j k

27. Illustrate and Explain… • Draw your own copy of the tariff diagram, with semi-conductors in Japan as the example. • Make a table with two columns: Winners and Losers. • List stakeholders who win or lose by the imposition of the tariff and give a brief explanation in each case of why. • Consider possible international implications. • Use the letters in the diagram to specifically identify the costs and benefits.

28. S(Domestic) P W P ePrice of wheat ($ per ton) S(Domestic) + subsidy Pw+ subsidy S(World) D Q1 Qe Q2 Q of wheat (000s tons) Q3 Subsidies e f g a b c d

29. Illustrate and Explain… • Draw your own copy of the subsidy diagram, with cotton in the USA as the example. • Make a table with two columns: Winners and Losers. • List stakeholders who win or lose by the granting of a subsidy and give a brief explanation in each case of why. • Consider possible international implications. • Use the letters in the diagram to specifically identify the costs and benefits.

30. S(Domestic) P W P ePrice of wheat ($ per ton) S(Domestic) + Quota S(World) D Q1 Qe Q2 Quantity of wheat (000s tons) Quotas f g h i j k a b c d e Q3 Q4

31. Illustrate and Explain… • Draw your own copy of the quota diagram, with textiles in Europe as the example. • Make a table with two columns: Winners and Losers. • List stakeholders who win or lose by the imposition of a quota and give a brief explanation in each case of why. • Consider possible international implications. • Use the letters in the diagram to specifically identify the costs and benefits.

32. Other Important Terms • Voluntary export restraints (VERs) • Administrative barriers • Health and safety standards and environmental standards • Embargoes • Nationalistic campaigns