Regulation of economic activity through control of industry and labor – formation of craft guilds
Pursued policies that kept wages low
Population control is out of the question
ADAM SMITH ● CRITICIZED MERCANTILISM ● THE WEALTH OF THE NATION IS NOT MEASURED BY GOLD AND SILVER, INSTEAD THE WEALTH OF THE NATION IS BEING MEASURED ON THE GOODS AND SERVICES AVAILABLE FOR THE CONSTITUENTS OF THE SOCIETY
“ A nation, like a person, gains from trade by exporting the goods or services in which it has its greatest comparative advantage in productivity and importing those in which it has the least comparative advantage.” – DAVID RICARDO (19 TH CENTURY)
even if a nation had an absolute DISadvantage in production of both commodities with respect to other nation, mutual advantageous trade could still take place
less efficient nation should specialize in production and export of commodity which its absolute disadvantage is less.
This is the commodity in which the nations has comparative advantage
UK has absolute disadvantage with respect to U.S. in production of both corn and shoes.
2. However, disadvantage is less in corn than in shoes. 3. Hence, U.K. has a comparative advantage with respect to the U.S. in corn and comparative disadvantage in shoes. 4. U.S. has greater absolute advantage over U.K. in shoes than in corn – U.S. has a comparative disadvantage in corn and a comparative advantage in shoes. 2 3 CORN 1 6 / labor-hr SHOES United Kingdom United States
In April 2001, Japan restricted imports of agricultural goods from China, two months later, China returned the “favor” by putting 100% tariffs on Japanese autos, cellphones and air conditioners. Japan then considered limiting imports of Chinese towels.
Most favored nation treatment (MFN) or Normal Trade Relations (NTR)
- Suppose the U.S. and India conclude a bilateral tariff negotiation whereby India reduces its tariffs on U.S. computers and the U.S. reduces its tariffs on Indian clothing. MFN or NTR states that any 3 rd country with which the U.S. has an MFN or NTR agreement will get the same tariff on clothing from the U.S.