International trade

MK U 27

RB pp 20-25

READINGPROTECTIONISM AND FREE TRADE

RB, pp 20-21

Read paragraphs 1 & 2 to explain:

THE COMPARATIVE COST PRINCIPLE

ABSOLUTE / COMPARATIVE ADVANTAGE

(REASONS & EXAMPLES)

COMPARATIVE ADVANTAGEThe idea that countries should specialize in making the

products that they are particularly good at making, and should import products that other countries are better at making.

Longman Business English Dictionary

• Comparative advantage is a situation in which a country, individual, company or region can produce a good at a lower opportunity cost than a competitor.

• Lower opportunity cost is the ability to produce a product most efficiently given all the other products that could be produced.– Opportunity cost – the cost of an alternative that must

be foregone (sacrificed; either-or). • Absolute advantage is the ability of a person or a

country to produce a particular good at a lower absolute cost than another.

http://www.investopedia.com

Collocations from pgs 1 & 2

rai______ living standard

spe______ in the production

c________ advantage ___ producing...

fac______ of production

div_______ of labour

ec_______ of scale

Collocations from pgs 1 & 2

raise living standard

specialize in the production

comparative advantage in producing...

factors of production

division of labour

economies of scale

Read paragraphs 3 & 4 to explain:

PROTECTIONISM AND REASONS FOR PROTECTIONISM

Reasons for TRADE LIBERALIZATION (Free trade)

• a______e/c________e advantage• spe_______n• a_____s to foreign markets • intern. c________n & efficiency• efficient market m_________m• freer m________t of resources• f______m to choose

Reasons for TRADE LIBERALIZATION

• absolute/comparative advantage• specialization• access to markets • intern. competition & efficiency• efficient market mechanism• freer movement of resources• freedom to choose

Reasons for Reasons for TRADE LIBERALIZATION PROTECTIONISM

• absolute/comparative advantage

• specialization• access to markets • intern. competition &

efficiency• efficient market

mechanism• freer movement of

resources• freedom to choose

• protect jobs (v____s)• protect d_______c ind.• strategic reasons

– i_____t industries

• prevent s_______l unemployment

• apply political p______e• protect culture (?)• raise r______e• prevent d________g

• absolute/comparative advantage

• specialization• access to markets • intern. competition &

efficiency• efficient market

mechanism• freer movement of

resources• freedom to choose

Reasons for Reasons for TRADE LIBERALIZATION PROTECTIONISM

• protect jobs (votes)• protect domestic ind.• strategic reasons

– infant industries

• prevent structural unemployment

• apply political pressure• protect culture (?)• raise revenue• prevent dumping

Protectionism: imports restriction methods

Barriers to trade

Read pg. 5 to learn about barriers to trade

Protectionism: imports restriction methods

RulesRegulationsLegislationVoluntary Exports RestrictionsExacting standars or Specifications

Collocations from paragraphs 3, 4 & 5 – which verbs are missing?

i________ tariffs & quotas / restrictionsp________ strategic / infant industriesa_________ sectorsl____ to structural unemploymentr________ a balance of payment deficitp_________ against dumpingd_______ or w______ competitorsr________ against restrictionsa_________ economies of scales____ a limit to importsp______ revenue for the government

Collocations from paragraphs 3, 4 & 5 impose tariffs & quotas / restrictionsprotect strategic / infant industriesabandon a sectorlead to structural unemploymentreduce a balance of payment deficitprotect against dumpingdestroy or weaken competitorsretaliate against restrictionsachieve economies of scaleset a limit to importsprovide revenue for the government

Barriers to free trade: tariffs, quotas, subsidies, customs duty, import licence,

complicated regulations for documents

TARIFFS• to impose / set a tariff• to place a tariff on sth• to eliminate / lift a tariff• high/low tariffs

QUOTAS• to impose / introduce / lift / set quotas• to increase / raise / reduce a quota• to comply with / exceed quotas

Barriers to free trade: tariffs, quotas, subsidies, customs duty, import licence,

complicated regulations for documents

SUBSIDY• government/state subsidies• to get/qualify for/receive a subsidy• to give/grant/pay/provide a subsidy

CUSTOMS DUTY

the customs duties on foreign cars

Read paragraphs 6 & 7 and explain:

ORGANISATIONS PROMOTING FREE TRADE & THEIR FUNCTION

OPPOSITION TO FREE TRADE

Removing trade barriers

• Organisations set up to encourage the removal of barriers to free global trade:– WTO (GATT)– IMF– World Bank

• Countries join or face exclusion from benefits of free world trade

GATT→ WTO• GATT stands for ...General Agreement on Tariffs and Trade.It is an ...international organization set ....up in 1947 with the objectives of ....encouraging international trade, of...making tariffs the only form of ...protectionism, and of...reducing these as much as possible.The final GATT agreement includes trade in goods,

services...copyright and investment.Explain: most favoured nation (MFN) clause

Collocations from paragraphs 6 & 7

g____ favourable conditions

o_____ free trade

c_________ a fall in prices

p________ import substitution

Collocations from paragraphs 6 & 7

grant favourable conditions

oppose free trade

counteract a fall in prices

practice import substitution

Read paragraphs 8 & 9 and explain:

PROBLEMS & FEARS OF DEVELOPING COUNTRIES (IMF)

IMF:- lends to countries with balance of payment problems- pushes for economic reforms (?)- reports on policies in member states

Criticisms:IMF lends money if countries agree to:- sell their resources cheaply- cut public spending→ increases problems of poverty

PROBLEMS & FEARS OF DEVELOPING COUNTRIES (IMF)

1 need to repay huge d____ - IMF imposed obligation to export

2 s_______ of the East Asian “Tiger” economies

3 c_______ of the Soviet Union

4 potential ex________ from the t______ blocks (the EU, NAFTA)

Read paragraphs 8 & 9 to explain:

PROBLEMS & FEARS OF DEVELOPING COUNTRIES (IMF)

1 need to repay huge debts - IMF imposed obligation to export

2 success of the East Asian “Tiger” economies

3 collapse of the Soviet Union

4 potential exclusion from the trading blocks (the EU, NAFTA)

Collocations:

p_____ the interest r______ the principalr______ (renew) a loanr _________ (postpone) repaymentsi________ severe conditionst_______ blocksl_______the economyl_______trade barriers

Collocations:pay the interest

repay the principal

rollover (renew) a loan

reschedule (postpone) repayments

impose severe conditions

trading blocks

liberalize the economy

lower trade barriers

RB, p 21, III – write questions

RB, p 21, III – write questionsWhat can give a country an absolute or

comparative advantage in goods or services over other producers?

• Why does the theory of comparative advantage seem inadequate to explain international trade?

• What is an infant industry?• What is the advantage of tarrifs for the govt.?• What is the advantage of quotas over tariffs?

MK, Unit 27, p 132: Free trade & Exceptions to free trade

→ VocabularyListening 1: Free trade1 They are s _ _ _ _ _ _ _ _ _, cannot always

e _ _ _ _ _ _ how the real world works & there are e _ _ _ _ _ _ _ _ _

2 It increases e _ _ _ _ _ _ _ _ - we can all c _ _ _ _ _ _ more. (Remember: The function of an economy is to allocate resources amongst unlimited wants.)

3 Developed and d _ _ _ _ _ _ _ _ _ countries producing computers and c _ _ _ _

4 Workers in a developed country – cannot find a job: w _ _ _ _ part of the country or no s _ _ _ _ _

5 T _ _ _ _ _ _ _ _ _ process

MK, Unit 27, p 132: Free trade & Exceptions to free trade

→ Vocabulary

Listening 1: Free trade

1 They are simplified, cannot always explain how the real world works & there are exceptions

2 It increases efficiency - we can all consume more. (Remember: The function of an economy is to allocate limited resources amongst unlimited wants.)

3 Developed and developing countries producing computers and cloth

4 Workers in a developed country – cannot find a job: wrong part of the country or no skills

5 Transition process

Listening 2: Exceptions to free trade1 Other goods and services have a h _ _ _ _ _

v _ _ _ _ a _ _ _ _ → generate higher w _ _ _ _ and economic g _ _ _ _ _

2 P _ _ _ _ _ _ _ _ _ the new sectors, letting them d _ _ _ _ _ _ and grow until they have a

c _ _ _ _ _ _ _ _ _ _ a _ _ _ _ _ _ _ _ and can

c _ _ _ _ _ _ with other countries

3 They may g _ _ _ _ _ _ _ economies of s _ _ _ _ and b _ _ _ _ _ _ other parts of the e _ _ _ _ _ by way of p _ _ _ _ _ _ _ e _ _ _ _ _ _ _ _ _ _ _ _

4 A _ _ _ _ _ _ _ _ - generates knowledge that goes into the a _ _ _ _ _ _ _ _ _ industry, electrical e _ _ _ _ _ _ _ _ _ _

Listening 2: Exceptions to free trade1 Other goods and services have a higher value

added → generate higher wages and economic growth.

2 Protecting the new sectors, letting them develop and grow until they have a comparative advantage and can compete with other countries.

3 They may generate economies of scale and benefit other parts of the economy by way of positive externalities.

4 Aerospace - generates knowledge that goes into the automobile industry, electrical engineering.

For and against free trade

→ MK, p 134

Vocabulary

Reading

Discussion: For and against free trade

1. Pick a side (for or against)2. Get together with your team3. Pick 3 most convincing arguments4. Get ready to present your opinion5. Organize your talk with phrases →6. Be prepared to argue in favour free trade

and against free trade!

Need the following phrases?• I am sure that...

• In my opinion... / I believe / From my point of view

• It is only fair / right to admit...

• It is difficult to take a firm stand on this, but ...

• Let me give you an example ... / If I may illustrate ...

• As / because of / since / consequently / therefore

• Firstly... Secondly... Thirdly...

• I am afraid that ...

• Although .... , I have to say ...

• Furthermore, ..../ Moreover,....

• However,...

Hw: Reading – Education and protection, MK p 133 + questions 1 & 2