International_of_Trade

International Trade ECO International Trade With the globalization of the economy, international trade is becoming more common and important to the economies of individual nations. In this paper Team B will identify the advantages and limitations of international trade as well as the differences between comparative and absolute values. Team B will also summarize the decisions each team member made in the international trade simulation. Team B will evaluate the effects of government policy on economic behavior and influences affecting foreign exchange rates. Finally, Team B will describe the topic of anti-dumping rules as described on the World Trade Organizations website and what the team learned from the website. Advantages and limitations of international trade International trade has advantages and limitations for the different groups involved. One advantage for the country importing goods is a reduction in the price of goods for the consumer. Another advantage to the exporting country is the increased demand that in turn increases production. International trade also has its limitations for the same groups involved. The importation of goods is also a limitation for the country because it limits the demand for domestically produced goods. Absolute and comparative advantage One major point from the reading assignments that was emphasized in the simulation is absolute advantage versus comparative advantage. Absolute advantage is the ability of a country to produce a good at a lower cost in terms of real resources than another country (Mankiw, 2007). However, the absolute advantage is not how countries decide what to import and export. Instead, countries use comparative advantage which is the ability to produce a good at a lower opportunity cost, when deciding whether it is to the country’s advantage to import or export a good. Results of the International Trade Simulation Each member of Team B went through the International Trade simulation to gain a better understanding of importing and exporting. During the simulation each member of Team B reached slightly different conclusions. For instance, two team members decided to export corn and two team members decided to export cheese. Another area where there was disagreement among team was whether or not to impose restrictions against dumping. One team member decided not to impose an anti-dumping tariff while the other members of the team did decide to impose them at different levels. In the end, the whole team did learn that there was an advantage to imposing them and would impose them in the future. An interesting paradox within the team’s decisions and beliefs arose with the last two parts of the simulation. Again one member of the team decided not to impose any tariffs or quotas when the rest of the team did at different levels of severity. The paradox arises when the team all decided to negotiate for free trade with both countries. It is confusing why each member of the team supported free trade, but when the idea of restrictions was posed in a different way, many of the team members imposed them. Tariffs, quotas, and free trade This debate brings up another major point from the reading assignments and the simulation; tariffs and quotas. Tariffs are taxes imposed on products imported from another country and quotas are restrictions on the quantity of a good that a country imports. Tariffs and quotas limit free trade, which is another key point from the reading assignments and the simulations. In the new global economy, free trade is becoming essential and specialization only helps to increase a countries wealth. Tariffs and quotas limit free trade and a country’s ability to increase its wealth. Government policy, economic behavior, and foreign exchange rates The government influences economic behavior through fiscal policy or taxes and government spending. Government policies can increase or decrease aggregate demand therefore determining the amount of money available for the import and export of goods. Taxes including tariffs can influence trade by increasing or decreasing the amount of each. Ultimately, when the dollar appreciates in the foreign exchange market domestic goods become more expensive and this encourages imports and discourages exports. This change offsets the increase in net exports and leads to the implication that trade policies don’t ultimately affect the trade balance (Mankiw, 2007). World Trade Organization and dumping The World Trade Organization is an international organization that provides a framework for implementing and monitoring trading agreements between nations. The WTO was developed in 1995 and currently 153 countries belong to the organization. Team B learned that the WTO works to negotiate agreements to reduce obstacles that stand in the way of free trade and to level the playing field for all countries involved. The WTO seeks to increase economic growth and development and create a strong and prosperous international trading system. Finally, Team B visited the World Trade Organization website and learned about anti-dumping policies. Dumping occurs when a company exports a product at a price lower than the price normally charged in the company’s home market (World Trade Organization, 2010). The WTO does not pass judgment on dumping; instead it focuses on how countries can react to dumping (World Trade Organization, 2010). Dumping is not prohibited, however countries are able to act to stop dumping by imposing duties on the imported goods. Action can only be taken if the dumping is hurting the manufacture of the good in the importing country. The role of the WTO in dumping is to investigate claims of dumping and determine if there is justification for anti-dumping duties. Conclusion Team B learned about international trade in three ways through reading assignments, the International Trade Simulation, and the World Trade Organization website. From these resources, Team B learned about absolute and comparative advantage and how comparative advantage is used to determine exports and imports. The team also learned about tariffs and quotas versus free trade and the possible advantages and limitations of each. Next Team B learned about how government policies affect economic behaviors and the influences that affect foreign exchange rates. Finally, the team learned about dumping and the WTO’s policies and their role in relation to dumping. The globalization of the economy is leading to more international trade and as this trade increases it becomes more important for people to understand the implications and the benefits of international trade and specialization.