Free trade and protectionism

edwinesosa's version from 2015-06-14 12:43


Question Answer
what is the wtoThey oversee and regulate international trade. Mainly they promote free trade, set trade rules and settle disputes
what are the main rules of wtoNo country can discriminate between trading partners; Imported and locally produced goods should be treated equally (once in the market)
Critisisms of WTOtoo powerful - Can compel soveriegn states to change laws; Doesn't give significant weight to problems of poor countries ( rich havent fully opened their markets to poor countries). theyre indifferent to effects of free trade on health environment child labour workers rights. No democratic accountability.
assumptions of camparative advantage (possible evaluation)no transport costs; homogenous products; barriers to trade.
benefits of free tradeincrease world output through comparative advantage (along with all positive consequences). less inflation as firms can import cheaper goods and raw materials. competition and efficiency. larger market for businesses. EOS. More Fdi in poorer countries to plug savings gap
COSTS OF FREE TRADEOVERSPECIALISATION - HIGHER RISK, MORE VULNERBALE TO EXTERNAL SHOCKS. domestic firms can't compete so job losses. Environment (transport).Inequality within and between countries (MNCs use monopsony power - labour and raw materials/commodities + eg china exploit africa) + dumping + MNC power)
Reasons for ProtectionismProtect domestic infant industries + improve BOP + Stop other negatives of free trade
Effects of protectionism other than the obvioustrade wars + inflation
2 main trading blocsEU NAFTA
Effect of free trade on AD AS and whyshift out AS - greater efficiancy ( specialisation, competition EOS)
Non obvious negatives of trading blocstrade diversion (bloc puts tarifs on formerly cheap trading partner eg UK NZ) + differeing impacts on memeber + retaliation (trade war)

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