ECONOMIC TRADEAND

INTERNATIONAL TRADE

By the graduating students

TRADE POLICIES

• TRADE is  the  transfer of ownership of  goods  &  services from  one  person  or  entity  to another. Trade is sometimes loosely called commerce or financial transaction or barter.

• A POLICY is  typically described as a principle  or  rule  to  guide decisions and achieve rational outcome(s).

TRADE POLICIES

• Are  government  policies  that directly  influences  the  quantity  of goods  and  services  that  a  country imports or exports.

• Defines  standards,  goals,  rules  and regulations  that  pertain  to  trade relations between countries.

FORMS OF TRADE POLICIES

• TARIFF – a tax on imported goods.

• IMPORT QUOTA – a  limit  on  the quantity  of  a  good  that  can  be produced  abroad  and  sold domestically

MAIN OBJECTIVES OF TRADE POLICY

• To achieve a balanced expansion of trade.

• To develop overseas markets within a  framework  of  multilaterialism (free, open and equitable trade between countries)

• To  boost  the  nation’s  international trade.

TYPES OF TRADE POLICY

• National trade policy:  Every country formulates  this  policy  to  safeguard the best interest of its trade and citizens. This policy is always in consonance with the national foreign policy.

Trade  policies  can  assume  varying dimensions  and  scope  depending  on  the number  of  parties  involved  in  the  policy. Consider  the  following  types  of  trade policies:

TYPES OF TRADE POLICY• Bilateral trade policy: This  policy  is  formed 

between two nations to regulate the trade and business relations with each other. The national trade  policies  of  both  the  nations  and  their negotiations  under  the  trade  agreement  are considered  while  formulating  bilateral  trade policy.

• International trade policy: International economic  organizations,  such  as  Organization for  Economic  Co-operation  and  Development (OECD),  World  Trade  Organization  (WTO)  and International Monetary  Fund  (IMF),  define  the international  trade  policy  under  their  charter. The policies uphold the best interests of both developed and developing nations. 

TYPES OF ECONOMIES IN RELATION TO OTHER ECONOMIES

• CLOSED Economy: An  economy  that  does  not interact  with  other  economies.  These  are  the economies  who  do  not  export  much  nor  do they  import  goods.  They  may  also  enjoy  an export  surplus  but  do  not  accept  as  much imports as they export. Example : BRAZIL

• In  a  way,  Brazil  is  a  jail.  Fortunately,  it  is  a beautiful prison, with glittering beaches, exotic flowers  and  wonderful  food.  However,  it  has 190  million  Brazilians  locked  in  a  closed economy—forced to accept whatever quality of goods  and  services,  at  whatever  price  and quantity.

TYPES OF ECONOMIES IN RELATION TO OTHER ECONOMIES

• Open Economy: An  economy  that interact  freely  with  other  economies around  the  world.  They  accept  and support  the goods of other  countries as much as they export their own products to other countries. 

TERMINOLOGIES

• Exports – goods and services that are produced domestically and sold abroad

• Imports - goods and services that are produced abroad and sold domestically.

• Net Exports – the value of a nation’s exports minus the imports (also called trade balance)

NX = E - M

TERMINOLOGIES

• Trade Surplus – an excess of exports over imports

• Trade Deficit - an excess of imports over exports

• Balanced Trade – a situation in which exports equal imports

MEASURE TO REGULATED INTERNATIONAL TRADE

• TARRIFS - taxes on imports that have the effect of raising the price of imports relative to domestically produced goods

- should act to increase the market share of domestic producers at the expense of imports

MEASURE TO REGULATED INTERNATIONAL TRADE

• IMPORT CONTROLS-  using quotas or a system of import licensing, the government is able to restrict the quantities of goods imported into the country.

 - these measures also guarantees a set share of the market for domestic producers.

MEASURE TO REGULATED INTERNATIONAL TRADE

• EXPORT PROMOTION : Incentive programs designed  to  attract more  firms  into exporting by  offering help in product and market identification and development,  pre-shipment  and  post-shipment financing, training, payment guaranty schemes, trade  fairs, trade visits, foreign representation,  etc

MEASURE TO REGULATED INTERNATIONAL TRADE

• EXCHANGE CONTROLS - Types of controls that  governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common  exchange controls include banning the  use  of  foreign currency  and   restricting the amount  of domestic  currency  that  can  be  exchanged within the country.

NOMINAL & REAL EXCHANGE RATES

• NOMINAL EXCHANGE RATES – the  rate  at which a person can trade the currency of one country for the currency of another.

Example : converting $ to Php APPRECIATION of the dollar – exchange rate

changes so that a dollar buys more foreign currency

DEPRECIATION of the dollar – exchange rate changes so that a dollar sells more foreign currency

NOMINAL & REAL EXCHANGE RATES

• REAL EXCHANGE RATES – the rate at which a person  can  trade  the goods and services of one  country  for  the  goods  and  services  of another.Like  the  Nominal  Exchange  Rates,  it  is  also expressed  as  units of the foreign item per unit of the domestic item.  But  in  this instance,  the  item is a good rather than an currency.

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