University of Phoenix – Houston
ECO/365–Principles of Macroeconomic
May 19, 2008
International Trade Concepts The concept of International Trade is the simple activity of the exchange of good and/or services between countries. These exchanges can involve two or more countries. Trade between two or more countries is called multilateral trade and Trade between two countries is called bilateral trade. Trade whether it’s international or local is a great tool for all countries because it boosts the economy of the world as a whole where prices or supply and demand affects global events. The trade of goods and services between countries must be of equal value that is equally desirable for all parties involved. The invention of money and the subsequent creation of the concepts of credit, paper money and non-physical money have increased the development of trade. Most economists agree and accept the very obvious theory that trade benefits both parties involved in the transaction. Trade is a concept that exists largely due to the differences in the cost of production of some tradable commodity in the various locations. International Trade gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. All kinds of products can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country's current account in the balance of payments (Reem Heakal, 2008). In the Applying International Trade Simulation the Government of Rodamia hired me as a Trade Representative to develop and coordinated international trade and investment policies and lead negotiations with other countries. Rodamia is the larges country within the trade events compared to its surrounding countries when it comes to area, population and levels of the economic development. At least four percent (4%) of the country’s GDP comes from agriculture such as, corn, wheat, dairy and poultry products. Thirty percent (30%) of Rodamia trade is industry based and another sixty-percent is from services.
Scenario 1 In scenario my job was to identify commodities or industries to which tax incentives could be given to encourage production on exports and imports. For domestic production and exports a decision was made to export cheese and DVD players and to import watches to Uthania and import corn to Alfazia. This decision to export was determined but the trade of the countries was not determined because the import of the goods or services did not create opportunity cost of production for these countries only Rodamia.
Scenario 2 As the Representative I had to determine whether the levy an anti-dumping tariff or impose a quota restriction on imports from Suntize. A decision was made to levy an advalorem anti-dumping tariff. This was a good decision; however, the level of tariff is less than what is needed to equate the export price of watches in Rodamia to the market value of watches. The level of Tariff is 30, the imports to Suntize were 3.75 units and domestic productions were 5.25 units. This means that the charge of tariff is $30.00 per unit, which is 19 percent of the export price that is less than the dumping margin. An improvement on Rodamia’s level of tariff need to increase to cover the dumping margin since the price of Rodamia watches increased and the imports of Suntize decreased by 3.75 percent.
Scenario 3 Scenario 3 suggest that if tariff is needs to be imposed then as trade representative I need to determine the tariff level so that the price differential between the imported corn and domestically produced corn can be