International Trade
How is trade balance defined?
Trade Balance=Exports-Imports=Net Exports
If Exports>Imports, trade surplus;
If Exports<Imports, trade deficit;
If Exports=Imports, trade balanced.
What does NAFTA stand for?
What agreement substituted NAFTA?
NAFTA: North American Free Trade Agreement
Took effect in Jan 1994, an agreement between the United States, Canada, and Mexico to have substantially free trade.
USMCA
Substituted NAFTA, in effect on July 1st 2020.
What is Balance of Payments?
The accounting system for how money moves between countries to facilitate the purchase of goods, services, financial instruments, and physical investments.
What is an externality?
a cost or benefit of economic activity that spills onto society
What is climate change?
long-term shifts in temperatures and weather patterns.
What principle is modern international trade based on?
Comparative advantage
What does CAFTA stand for?
1. Central American Free Trade Agreement.
2. Created a (relatively) free trade zone between N A F T A countries and five Central American countries (Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua), and the Dominican Republic.
3. First free trade agreement between the United States and a small group of developing countries.
Major accounts under BP system
Current account vs. financial and capital account
Give some examples of negative externality and positive externality, respectively.
Negative externality: pollution, soda consumption, noise
Positive externality: vaccination or college education
What is the main driver for the climate change?
Human activities
Terms of Trade (TOT)
The amount of a good one country must give up in order to obtain another good from the other country, usually expressed as a ratio.
What countries are included in G7?
a group of 7 large, industrialized countries
Canada, France, Germany, Italy, Japan, the United Kingdom, the United States
Difference between credit entry vs. debit entry under BP system
A credit transaction results in a receipt of a payment from foreigners; recorded with a +
A debit transaction is one that leads to a payment to foreigners; recorded with a -
Negative externality is associated with over or under-allocation of resources? What about positive externality?
Negative externality is associated with over-allocation of scarce resources.
Positive externality is associated with under-allocation of resources
What is the meaning of "net zero emissions"?
Net-zero emissions refers to
achieving a balance where all greenhouse gas emissions released by human activities are offset by removing an equivalent amount from the atmosphere.
This means reducing emissions as much as possible and then balancing any remaining emissions with carbon removal methods.
Please name a few trade barriers.
Tariff
Quota
Non-tariff trade barriers: Domestic content requirement
Can you name a few emerging countries included in G20?
Countries in G7 as well as many emerging countries such as Argentina, Brazil, India and China,
What are the two significant elements under financial account?
What are the two major elements under current account?
1. The most significant elements of the financial account are:
the amount of international investment in the US and the amount of investment by Americans in other countries.
2. Exports and Imports are the two major elements under current account
What does EPA stand for? What is the function of EPA?
Environmental Protection Agency (EPA) formed in 1970 – to administer all environmental laws
How much warmer is our current average temperature of earth's surface than before?
The average temperature of the Earth’s surface is now about 1.1°C warmer than it was in the late 1800s.
In the US, what happens to its imports and exports as a percentage out of GDP in the past few decades?
Both imports and exports as a percentage of GDP have been increasing in the US.
Benefits of Free Trade
1. Free trade makes each trading partner better off than it would have been without trade.
2. Countries export goods to other nations because the producing country can make the good at a lower opportunity cost than the importing country.
What is the relationship between current account and trade balance?
Current account mirrors trade balance.
Current account deficit implies trade deficits and current account surplus implies trade surplus.
What are the two major types of gas in the greenhouse gas emission?
Carbon dioxide and methane
To help us avoid the worst climate impacts and maintain a livable climate, what temperature rise should we try to limit to?
Scientists and government reviewers agreed that limiting global temperature rise to no more than 1.5°C would help us avoid the worst climate impacts and maintain a livable climate.
Absolute advantage vs comparative advantage
Absolute advantage: The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.
Comparative advantage: The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Does international trade jeopardize American jobs?
In the short run, there will be both winners and losers;
Over the long run, increased trade tends to neither inhibit job creation nor contribute to the increase in the overall unemployment rate.
What are the implications if you know that US has been running trade deficits and that China has been running trade surplus, respectively, for many years?
US is selling more financial assets to foreign countries than it buys from them;
China is buying more financial assets from foreign countries than it sells to foreign countries.
When externality problem exists, is the market able to operate efficiently on its own?
No, market will have a failure.
What are three broad actions that will be taken under global frameworks and agreements to guide climate change progress?
cutting emissions,
adapting to climate impacts
and
financing required adjustments.
Reasons for Limiting Trade That Many Economists Support
National Security
National Identity
Lax worker safety rules
Lax environmental standards
What is tariff escalation?
Relatively higher rates import duties are levied on processed commodities compared to those on unprocessed commodities or raw materials.
For instance, a country may choose to impose no tariff on the import of raw leather, but a positive tariff on the import of leather
What is the floating exchange rate system?
Does government intervene the floating exchange rate system?
1. Floating Exchange Rate System: a system whereby markets determine the value of a currency relative to all other currencies.
2. Government rarely intervenes the foreign exchange rate market, but very occasionally, it does intervene.
How can the government help with solving negative externality problems?
1. Regulation
2. Tax -Effluent fees or Emission fees
3. Marketable pollution permits
What are the seven largest greenhouse gas emitter countries?
The seven biggest emitters alone (China, the United States of America, India, the European Union, Indonesia, Russia, and Brazil) accounted for about half of all global greenhouse gas emissions in 2020.
Reasons for Limiting Trade That Most Economists Do Not Support
1. Protecting emerging industry from foreign competition
2. Dumping:
the exporting of goods below cost so as to drive competitors out-of-business.
Can you name a few trade characteristics for the developing countries?
1. Export mainly to advanced nations primarily in Primary products and simply manufactured goods, lacking diversity in the exports;
2. Falling Commodity Prices Threaten Growth of Exporting Nations
3. Worsening terms of trade
4. Limited Market Access
5. Agricultural Export Subsidies of Advanced Nations
What is the difference between fixed exchange rate system and managed float exchange rate system?
Do you know which country has adopted either of the exchange rate system, as mentioned above?
1. Fixed Exchange Rate System: a system whereby a government sets the value of a currency relative to all other currencies and uses its reserve of foreign currencies or gold to maintain the exchange rate.
2. Managed Float Exchange Rate System: a system whereby governments decide the range of exchange rates they will allow the market to create, and act only when either the top end or the bottom end of that range is breached.
Please name a few important environmental policies enacted in the US.
Air Pollution Act of 1955 – first piece of federal legislation to deal with pollution by calling for research into air pollution
Clean Air Act of 1963 – to control air pollution
Clean Air Act of 1970 – to enforce national clean air standards (further amended and strengthened in 1977 and again in 1990)
Federal Water Pollution Act of 1972 – further mandated that the EPA reduce water pollution
Endangered Species Act of 1973.
Please name a few consequences of climate change
Hotter temperature, intense droughts, water scarcity, severe fires, rising sea levels, flooding, melting polar ice, catastrophic storms and declining biodiversity.
Determinants of Net Exports
1. If U.S. price level rises faster than foreign price level, net exports decrease;
2. If U.S. GDP grows faster than foreign GDP, net exports decrease;
3. If US rises in value relative to other currencies, net exports decrease.
Please name a few major differences between GATT and WTO?
GATT: It is concerned with goods.
WTO: It is concerned with goods, service and intellectual property.
GATT: Weak and slow dispute settle mechanism.
WTO: Strong dispute settlement mechanism.
GATT: It was a provisional agreement
WTO: It is a permanent organization
Determinants of Exchange Rates
1. Desire to hold one currency or another to facilitate trade or facilitate the purchase of financial assets.
2. Interest Rates and Projected inflation rates.
3. Relative safety of the currency
What are the benefits with charging effluent fees or emission fees on the firms that generate pollution?
Internalize negative externality due to pollution
Collect tax revenue
Decrease deadweight loss
Double-dividend taxation
What are the major causes of climate change?
1. Generating power
2. Manufacturing
3. Deforestation
4. Transportation
5. Producing food
6. Powering buildings
7. Consuming too much