Welcome to EC 382 International Economics By Dr Jacqueline Khorassani Week Eight 1 Week Eight Class One Tuesday October 23 14 10 15 00 AC 202 Your grades are now available on line at www marietta edu khorassj I have some graded assignments here please pick them up 2 I received a request Could you please go over the effective rate of protection again Specifically on pg 145 There is the example of DVD players in the US I did not get the same answer as the book 3 Thanks for the question here is the answer ERP Tf aTc 1 a In the book s first DVD Player example P 145 a 0 5 Tf 0 2 and Tc 0 ERP 0 2 0 5 0 4 or 40 percent The book is right 4 In the book s second example P 146 Everything is the same only now there is a 10 tariff on the component tc 0 1 ERP 0 2 0 5 0 1 0 5 ERP 0 2 0 05 0 5 0 15 0 5 0 3 or 30 The book is right 5 You sent me information Also in class previously some one asked you about tariff escalation This is referred to on pg 146 2nd paragraph down 6 Thanks so much for this one Tariff Escalation Refers to the fact that a small T f coupled with a large a high effective rate of protection Even when the tariff on final good is small given that a high percentage of the value of the good is imported and there is little or no tariff on the imported components the effective rate of protection is high 7 I received a question In the last study guide you haven t mentioned The Evolution Of US Trade Policy The history of Antidumping Law in the US and the Escape Clause Are we suppose to study these topics as well or not 8 Answer Thanks for paying attention 1 2 In general I will not cover US specific laws in this class In some cases I will replace it with international laws or EU laws In other cases we will simply drop them 9 Other Nontariff Distortions 1 Industrial Policy Domestic regulations can distort international trade Regulations sometimes have the intent of directly impacting trade Regulation effects are difficult to quantify 10 Examples 1 2 Guaranteed low interest government loans for domestic producers Tax advantage to exporting industries 11 Other Non tariff Distortions 2 Government Procurement Laws that direct a government to buy domestically made products unless comparable foreign products are substantially cheaper Spending of public funds places restrictions on funds Justification that buying domestic is better for the country Similar to Mercantilist s view 12 Other Non tariff Distortions In countries where government owns industry and has government procurement trade is severely restricted 13 Other Non tariff Distortions 3 Technical Barriers to Trade Laws that apply technical standards to goods or services that may distort trade Domestic country s national standards for safety health and product labeling Some goods must meet technical standards like cars exported from the U S to Ireland 14 Other Non tariff Distortions 4 Subsidies Governments subsidies distort trade flows Such subsidies can be directly tied to exports or more commonly they are domestic subsidies that indirectly influence trade 15 Other Non tariff Distortions 5 Labor and Environmental Standards Countries differ in regulations for workers with respect to safety and work conditions Developed countries argue they cannot compete with wages in countries with less strict labor laws Empirical evidence has not shown significant effects on trade 16 International Economics Week Eight Class 2 Wednesday October 24 11 10 12 00 Tyndall 17 A question Is there a book in the library that we could use while the textbook is not available Please check they should have 5 copies 18 A correction In Ireland we use a hyphen when spelling non tariff not nontariff I think this was causing a lot of confusion in class thanks Sorry for confusing you 19 Other Non tariff Distortions Labor standards Laws that apply labor standards to manufactured products that may restrict imports Pollution intensive industry feels disadvantaged in countries with high pollution regulations Little of no empirical evidence of effects WTO Countries cannot impose standards by limiting imports 20 Transportation Costs and Trade Transportation costs tend to reduce the quantity of trade between countries by raising the price of imported goods A good will be traded internationally if transportation costs are low enough so that it is profitable to international trade the goods between countries 21 free trade in the absence of transportation cost Price of Cloth Price of Cloth SUS SINDIA E 10 7 7 5 F DUS 50 100 150 U S Cloth Market Quantity of Cloth DINDIA 50 100 150 India s Cloth Quantity 22 of Cloth Market Now lets add transportation Cost 2 per unit paid by the US demand for US India cloth goes Price of Cloth down P India goes down to 6 Price of Cloth SUS SINDIA 8 7 6 2 7 6 DUS DINDIA 80 130 50 150 U S Cloth Market 80 Quantity of Cloth 50 India s Cloth 13 0 150 Quantity 23 of Cloth Market Questions 1 2 What is Fair Trade Is it a distortion to free trade 24 Fair trade is an organized social movement that promotes the payment of a fair price as well as social and environmental standards in areas related to the production of a variety of goods The movement focuses on exports from developing countries to developed countries most notably handicrafts coffee cocoa tea bananas honey cotton wine fresh fruit etc 25 Fair trade s strategic intent is to deliberately work with marginalized producers and workers in order to help them move from a position of vulnerability to security and economic self sufficiency It also aims at empowering them to become stakeholders in their own organizations and actively play a wider role in the global arena to achieve greater equity in international trade Fair trade proponents include international religious development aid social and environmental organizations such as Oxfam Amnesty International and Caritas International 26 27 Controversy Some economists see fair trade as a type of subsidy that distorts free trade Segments of the left criticize fair trade for not doing enough 28 Let s start Chapter 8 with a game I need 12 volunteers bring a pen with you Round 1 Direct Democracy No communication Proposal A new tariff on imported widgets Everyone has one vote You may vote for or against the proposed tariff Secret Ballet 29 Round 2 Representative Democracy No communication In order to make your representative aware of your wish you need to hire a lobbyist Jackie who charges 170 Who will hire Jackie 30 Facts If the tariff goes into effect Total