Chapter 8- International Trade-International Relations

Chapter 8:
International
Trade
International Relations
THEORIES OF INTERNATIONAL TRADE
International trade amounts to one-sixth of the total economic activity in the

world. Around 19 trillion of goods and services across international borders each
year. The great volume of international trade reflects that trade is profitable.
Trade is not only an economic issue it is a highly political one. It crosses state
borders, is regulated by states that are pressured by interests group and occurs
within trade regimes maintained by and negotiated among states.
Scholars of International Political Economy (IPE) thus study the politics of

international economic activities. The most frequently studied of these activities
are trade, monetary relations and multinational corporations
Mercantilism Economic Liberalism and
→ Two major approaches within IPE (international political economy) differ on their views on trade. One approach is is
called Mercantilism.
→ MERCANTILISM: An economic theory and a political ideology opposed to free trade: it shares with realism the belief
that each state must protect its own interest without seeking mutual gains trough international organizations.
→ Free trade, also called laissez-faire, a policy by which a government does not discriminate against imports or
interfere with exports by applying tariffs (to imports) or subsidies (to exports)
→ One example of free trade is the agreement between the United States, Mexico, and Canada, known as the North
American Free Trade Agreement (NAFTA).
→ The North American Free Trade Agreement (NAFTA) was a treaty between Canada, Mexico, and the United States
that eliminated most tariffs between the counties. It was replaced by the United States-Mexico-Canada Agreement
(USMCA) on July 1, 2020
Mercantilism
and
Imperialism
(colonial era)
The triangular
trade
→ Mercantilism led to the emergence of

what's been called the “triangular trade”:
a system of exchange in which Europe
supplied Africa and the Americas with
finished goods, the Americas supplied
Europe and Africa with raw materials, and
Africa supplied the Americas with enslaved
laborers.
→ How did the triangular trade route help

England practice mercantilism?
→ Imported goods cost money. The system

of Triangular Trade allowed for goods to
be traded for other goods, rather than being
bought or sold. The triangular trade
routes were pivotal to
the practice of Mercantilism by England
by which colonies had one main purpose: to
enrich the parent country (England).
Economic Liberalism
→ In the context of international political economy (IPE) , an approach that generally shares the
assumption of anarchy ( lack of world government) but does not see this condition as
precluding extensive cooperation to realize common gains from economic exchanges . It
emphasizes absolute over relative gains and, in practice, a commitment to free trade , free
capital flows, and an “open” world economy.
→ Economic liberalism holds that building international organizations , institutions and norms ,
states can mutually benefit from economic exchanges.. It matters little to liberals whether
one state gains more or less than the other , just whether the state’s wealth is increasing in
absolute terms
FREE TRADE
→ The flow of goods and services across national boundaries unimpeded by tariffs or other
restrictions/ A free trade agreement is a pact between two or more nations to reduce barriers
to imports and exports among them. Under a free trade policy, goods and services can be
bought and sold across international borders with little or no government tariffs, quotas,
subsidies, or prohibitions to inhibit their exchange.
→ One example of free trade is the agreement between the United States, Mexico, and
Canada, known as the North American Free Trade Agreement (NAFTA).
Comparative advantage
→ The principle that says states should specialize in trading goods that they produce with the
greatest relative efficiency and at the lowest relative cost.
Political interference in markets (imperfect markets)
→ Imperfect markets are characterized by having competition for market share, high barriers to entry
and exit, different products and services, and a small number of buyers and sellers. Perfect markets are
theoretical and cannot exist in the real world; all real-world markets are imperfect markets.
→ Among some of the most common market imperfections are monopolies, oligopolies, large
countries in trade, externalities, public goods, non clearing markets, imperfect information, and
government tax and subsidy policies. Externality effects can arise from production or consumption
activities.
→ An oligopoly is a market form wherein a market or industry is dominated by a small group of large
sellers. Oligopolies can result from various forms of collusion that reduce market competition which then
leads to higher prices for consumers and lower wages for the employees of oligopolies.
Political interference in markets
→ Taxes on international trade: a political influence on markets that includes import duties, export duties, profits
of export or import monopolies, exchange profits, and exchange taxes. Description: The map below shows
how Taxes on international trade (% of revenue) varies by country. Taxes are used to both generate revenue for the
government and to regulate economic activity by incentives.
→ Economic Sanctions: Economic sanctions are commercial and financial penalties applied by one or more countries
against a targeted self-governing state, group, or individual. ... Economic sanctions may include various forms of trade
barriers, tariffs, and restrictions on financial transactions OR Sanctions and embargoes are political trade restrictions
put in place against target countries with the aim of maintaining or restoring international peace and security.
→ Autarky: a policy of self reliance, avoiding or minimizing trade and trying to produce everything
Protectionism
Protectionism is the economic policy of restricting imports from other countries through methods such as
tariffs on imported goods, import quotas, and a variety of other government regulations.
In the long term, trade protectionism weakens the industry. Without competition, companies within the
industry do not need to innovate. Eventually, the domestic product will decline in quality and be more
expensive than what foreign competitors produce. Increasing protectionism will further slow economic
growth.
When a government legislates policies to reduce or block international trade it is engaging
in protectionism. Protectionist policies often seek to shield domestic producers and domestic workers
from foreign competition. The Trump Administration's tariffs on steel and aluminum in 2018 are a
recent example.
A protectionist trade policy allows the government of a country to promote domestic producers, and
thereby boost the domestic production of goods and services. ... Protectionist policies also allow the
government to protect developing domestic industries from established foreign competitors.

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Chapter 8:

International trade amounts to one-sixth of the total economic activity in the

Scholars of International Political Economy (IPE) thus study the politics of

→ Mercantilism led to the emergence of

→ How did the triangular trade route help

→ Imported goods cost money. The system

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