International Economics Learning goals & competences: explain Globalisation, compare the riscs and the chances of globalisation, name and describe the important organisations discuss the theories of free trade, compare pro‘s nd cons of free trade and protectionism
5) How is international trade measured: Balance of trade, Capital BalanceBalance of Payments
7) Issues / Imbalance / Trade wars 2) Globalisation:
The increasing social, technological, political and economic interdependence and interaction between people, firms and entire economies around the world.. World gets more specialists, more knowledge; Waterways make trade possible (Smith)
▼ Value of global trade in physical goods, 1960–2010
1) Why do we trade?
Specialization and division of labour (Adam Smith) allow the economies to produce greater volume of goods and services. > increased output, incomes & living standards. Economies trade with each other to obtain goods & services they need and want
reasons ease of travel + variety of goods/servic + opportunity to by anywhere
+ opportunity to move labour and capital anywhere global financial market
Why Free Trade or why not?
Arguments for Arguments against
benefit from spezialization threat to jobs in developed economies increased customer choice threat to natural resources increase of competition and efficiency exploitation of workers
+ business/emploment opportunities increased gap between rich and poor nations acces to best workforce, resources anywhere
Why Protectionism or why not?
Arguments for trade protection Arguments against trade protection to protect infant (sunrise) industries (China) it reduces the gains from trade protect sunset industries (steel US) restricts customer choice to protect strategic industries e.g agriculture restricts new business opportunities to protect domestic firms from dumping inefficient domestic rifms protected from
competition
to correct a trade imbalance other countries will respond to protectionism
3) Theories promoting free trade (Classical Economists):
Adam Smith: Absolute advantage: each country should produce what it can make cheaper (e.g. Spain produces fruit and Norway fish)
D. Ricardo: Comparative advantage: 2 countries should even trade if one is more efficient in producing all products, because together they can increase the total output (e.g.
England is better fabric and in wine than Portugal, however both should focus on where they are comparatively better >
England produces fabric and Portugal wind, and in total they increase the overall output)
4) Theories promoting protectionism:
Jean Babtiste Colbert: (finance minister of Lous XIV and founder of Mercantilism): background is absolutistic monarchies, purpose: strengthen home economy and exports
Friedrich List: National System of Political Economy, but also Alexander Hamilton the 1st UR Finance minister under George Washington protection infant industries through tariff and trade barriers; to strengthen the national economy (Germany: Role model for China)
6) Exchange rates (currency):
International trade requires exchange of foreign currencies, because there is no global currency.
FOREX (foreign exchange market) is the largest financial market.
e.g.: A brazilian exporeur sells coffe to a US importer für 100k Brazilian real. The US importer buys real to be able to pay the goods.
When trade balance is in surplus (more exports than imports) > also the price for the national currency will rise, because forreign customers will demand Brazilian real
In case of a deficit of the balance of payments, the local currency will decrease compared to other currencies, because there is increased supply of the local currency) Stages of Globalisation
Marco Polo Silk road between Europe & China
15th C: Christoph Columbus, Vasco da Gama, Amerigo Vespucci: America (India):
Netherlands 17th century England 18th and 19th century Hongkong 19th century
1944 Bretton Woods: GATT: General Agreement for Tarrifs and Trade; trade is better than war 1950 Europe: EGKS (France, Germany, Italy, Benelux)
1990s World Trade Organisation (WTO) ,: multilateral trade EU agreement 194 members states, EU common market 2000: Free Trade Agreements: NAFTA (US, Mexico, Canada), Mercosur, CETA (Europe and Canada), TTIP, TISA 2018 NAFTA > USMCA (new free trade agreement between US, Mexico, Canada)
