UNIT 17- International trade

UNIT 17.
International trade
Reading 1.
Comprehension:
SUGGESTED ANSWERS
1. The analogy is that although children could start unskilled work at a very young age (and learn
how to be productive, because of competition), they need many years of education if they are ever
going to get a good, well-paid job; similarly, to develop advanced industries which give a high
return, it is necessary to protect them while they grow up and increase their efficiency and
productivity.
2. The short-term disadvantage is that consumers have to use expensive, inferior products from
inefficient domestic producers, rather than be free to buy superior imported goods.
Vocabulary:
1. generic 2. trademark 3. dumping 4. copyright 5. subsidize
Reading 2.
1. Because it can be shown that if all countries specialize in the goods or services in which they
are most productive (in which they have an absolute or comparative advantage), they will all
raise their income.
2. In order to protect jobs and what they consider to be strategic industries.
3. Because they wanted to industrialize (and protect their infant industries), rather than merely
produce raw materials, whose price could easily fall.
4. For fear of being excluded by large trading blocks, and because they have seen the exported-
led growth of East Asia ‘Tiger’ economies.
5. Factors of production, most important raw materials, but also labor and capital, climate,
economies of scale, and so on.
6. Because it doesn’t explain why the majority of the exports of advanced industrialized
countries go to other very similar countries.
VOCABULARY
Exercise 1:
1. f 2. c 3. e 4. b 5. g 6. m 7. l 8. h 9. i 10. a 11. k 12. d
Exercise 2:
1. customs 2. handling
3. premises 7. documentation
4. truck 8. transit
5. loading 9. terminal
6. freight 10. clearance
Exercise 3:
1. K 2. H 3. L 4. G 5. D 6. A 7. F 8. B 9. E 10. M 11. I 12. C
Unit review
1. Suggested answer: Imposing tariffs (taxes on imports) helps to raise tax revenues for the
government. This will benefit the economy as the money can be spent on healthcare and education
etc. Also, tariffs raise the price of imports and so may reduce the demand for imports. Tariffs can
also be used to protect infant industries. allowing them to grow and become internationally
competitive.
However, tariffs might not be effective as they simply cause other countries to retaliate and impose
their own tariffs. Also, for a country like Singapore that relies on imports, tariffs raise the costs of
imported raw materials and so can cause cost-push inflation in the economy.
2. International trade refers to the exchange of goods and services beyond national borders. It
entails the sale of exports (goods and services sold to overseas buyers) and imports (foreign goods
and services bought by domestic households and firms). Free trade means that international trade
can take place without any forms of protection, i.e. barriers to international trade, such as
quantitative limits or taxes being imposed on exports.
3. Choose from the following: tariffs, quotas, subsidies for domestic firms, administrative
restrictions and boycotts (bans or embargoes).
4. Possible benefits include:
- Allows a country to specialize in what it is best at producing [11, thus improving economic
efficiency.
- No tariffs charged or quotas imposed on exports/ imports [1], so encourages international trade
and cooperation.
- Increased competition can force firms to reduce costs (lower prices) and/or increase their
productivity.
- Access to larger global markets enables firms to take advantage of economies of scale
- Employment opportunities from higher export sales and/or from multinational companies
operating in the domestic country.
- Firms have access to more raw materials and capital goods, which improves their operational
efficiency.
- Consumers have greater access to better-quality goods and services, which can help to improve
their standard of living.
5. Possible disadvantages include:
- Domestic firms can go out of business if products from foreign firms are more competitively
priced and/or of better quality, which can lead to domestic unemployment.
- International trade may allow the import of harmful products, which adversely affects the
economy and the well-being of a country's people.
- Economic dependence on other countries, which can put the country in a vulnerable position if
there is a political-economic conflict.
Trade rivalry between countries can lead to friction and even war between countries. especially in
the case of unfair tactics such as dumping.
6. Possible reasons include:
- The lack of scarce resources in the domestic country, e.g. Bangladesh does not have sufficient
supplies of crude oil and natural gas, whereas Brunei Darussalam does not have the arable land
needed to grow rice and tropical fruits, so they need to trade with other countries.
- It is often cheaper to import products than to produce them domestically, e.g. Sweden could, in
theory. grow its own pineapples and bananas but it would be more economical to purchase these
from overseas countries such as Thailand, the Philippines and India.
- International specialization and trade can benefit consumers as there is more competition, leading
to more choices and improved quality of products.
- Employment opportunities can also arise from international trade and greater volumes of output.

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