International Trade; Tariffs; Terms Of Trade

International Trade; Tariffs; Terms Of Trade

Q1: What do you mean by international trade?

Trade refers to the exchange of goods and services for money. International trade refers to sales that cross juridical borders. Thus, international trade can be defined as the exchange of goods and services across international boundaries. In most countries, it represents a significant share of Gross Domestic Product (GDP). International trade has been present throughout much of history (for example, the Silk Road and Amber Road). However, the emergence of capitalism and accompanying industrialization and advanced transportation greatly increased the economic, social, and political importance of international trade.

The outbreak of World War I, the redistribution of the colonies among the Great Powers, the collapse of the gold standard, and the economic depression of the 1930s gave rise to economic nationalism and protectionism. Free trade gave way to government intervention and tariffs; quotas and other protectionist measures became dominant features in international trade.

The end of World War II brought about the revival of the free trade philosophy. The General Agreement on Tariffs and Trade (GATT) was formally established in January 1948. This international organization was instrumental in organizing negotiations among contracting parties, aimed at the reduction of tariffs, from the first meeting in Geneva in 1947 up to the so-called Uruguay Round of trade negotiations, which began in 1986 and concluded in 1993.

Q2: What is the impact of trade negotiations on quotas?

The trade negotiations led toward the elimination of quotas, substantial reduction of tariffs, and limiting almost all other forms of protectionism. The Uruguay Round focused on agricultural export subsidies, restrictions on trade in banking and insurance, and restrictions on foreign direct investment.

Figure 1 Welfare Effects of a Tariff

Figure 2 U.S. Average Tariff Rate (%), 1930-2006

Following the conclusion of the Uruguay Round, GATT was replaced by the World Trade Organization (WTO). The WTO is charged with the further develop ment and policing of the multilateral trading system along the principles followed by the eight rounds of trade negotiations.

In addition to the expansion of free trade, the structure of world trade has begun to change since World War II and particularly in the last three decades. Important characteristics of current global trade patterns are that 75 percent of the world's exports are from developed countries, while only 25 percent are from developing ones; developed countries export mainly manufactured goods: 83 percent of their total and 62 percent of all world exports. However, despite the overall increase in economic welfare generated by international trade, the expansion of international trade raises many questions.

Q3: What is the true connection between trade globalization and economic growth and poverty reduction, and who benefits more from increased trade?

The basic statistics on international trade provide mixed answers at best. From 1950 to 1970, developed countries gained in the share of total world exports, and developing countries lost; developing countries in east Asia significantly increased their manufactured exports, and this increased their share of the world trade during the ...