International Trade in International Relations

1. GOOD MORNING

2. INTERNATIONAL
TRADE

3. DEFINITIONTO INTERNALTRADE
Internal trade my be defined as the exchange of
goods and services among the residents of the
same country

4. DEFINITIONTO INTERNATIONAL
TRADE
International trade is the exchange of goods
and services between countries. This type of
trade gives rise to a world economy, in which
prices, or supply and demand, affect are
affected by global events.

5. DIFFERENCE BETWEEN INTERNAL AND EXTERNALTRADE
 Factor Mobility,
Labour, Capital
 Product Mobility,
Import and Export
duties
 Economic
Environment
 Monetary Units

6. CAUSES OF INTERNATIONALTRADE
 Natural Resources
 Climate /Terrain
 Labour Force
 Specialization

7. ADVANTAGES OF INTERNATIONAL
TRADE
 In reaping the benefits of specialization
 Standard of living generally improves
 Benefits of large scale production
 Expansion of Markets
 benefits of decreasing cost of production
 increase competition
 promote beneficial political links with ECO,
SAARC,
 regional and worldwide integration

8. Expansion inTrade AfterWorld
War-II
■ Productive technology
■ Demand of new Resources
■ Materialism
■ Advancement inTransportation
■ FreeTrade Philosophy: David Ricado
■ Pattern of InternationalTrade N-N (66%), N-S (30), S-S (5.1%)

9. Terms ofTrade & Its
Significance
Terms ofTrade means the
relationship between the
price of a nation’s export
and the price of its
imports. It shows the rate
at which the export of a
country exchange for its
imports.
■ Impacts of import and
export
■ terms of trade improve
balance of payment
■ unfavorable terms of
trade require foreign aid
to remedy loss.

10. D
i
s
c
u
s
s
i
Trade is not only an
economic issue but a highly
political one. IPE:
International Political
Economy

11. Approaches within IPE
THEORIES OF INTERNATIONALTRADE
 Mercantilism
 Liberalism
 Marxism
 Comparative advantage

12. 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
interests without seeking mutual gains though
international organization (Joshua.p.272)

13. Important Points: Mercantilism
■ Realist approach
■ Dominance Core Principle
■ Anti-Marxist approach
■ Trade in bullion only (EIC, 1500-18)
■ Zero Sum Game
■ Economy for military strength
■ To translate wealth into military power
■ Self reliance
■ Non reliance on INOs, Govt full control
over trade
■ Protect interests at expenses of others
■ rejects the framework of mutual gain
Note: Mercantilist believe that the outcome
of economic negotiations matters for
military power.

14. MERCANTILISM
 Wealth translated into military power
 Restrictions on imports
 Government investment in research and development to
maximize efficiency and capacity of the domestic industry.
 Allowing copyright/intellectual theft from foreign companies.
 Limiting wages and consumption of the working classes to
enable greater profits to stay with the merchant class.

15. EXAMPLES OF MERCANTILISM
 Under the British Empire, India was restricted in buying from
domestic industries and were forced to import salt from the UK.
Protests against this salt tax led to the ‘Salt tax revolt’ led by
Gandhi.
 Some have accused China of mercantilism due to industrial
policies which have led to an oversupply of industrial production
– combined with a policy of undervaluing the currency.

16. LIBERALISM
In the context of international political economy
(IPE) an approach that generally shares the
assumption of anarchy but doesn’t see this
condition as precluding extensive it emphasis
absolute over relative gains and in practice, a
commitment to free trade, free capital flows, and an
open world economy. (Joshua.p.272)

17. Important Points: Liberalism
■ Liberal approach
■ Reciprocity Core Principle
■ Anti-Marxist approach
■ Economy for exchange
■ To translate wealth into gain or loss; gain for one, loss for another
■ Self reliance
■ Non reliance on INOs
■ Protect interests at expenses of others
■ rejects the framework of mutual gain
Note: Mercantilist believe that the outcome of economic negotiations matters for
military power.

18. LIBERALISM
 Removing Barriers to International Investing
 Unrestricted Flow of Capital
 Political Risks Reduced
 By building organization and institutions states can mutually
benefit from economic exchange
 Shared interest in economic exchange

19. Liberalism Mercantilism
Economic Relations Harmonious Conflictual
Major Actors Households, Firms , states’ role
mini
States, it’s role max
Goal of Economic Activity Maximize global welfare, efficiency Serves the national interest,
distribution
Trade Trade is always beneficial, increase
in product quality
FreeTrade
Resources and benefits of trade
goes to state
Protectionism
Raw Material raw material processed by other
states
Raw material gathered and
process
Difference between Mercantilism and Liberalism

20. DEFINITIONTO ABSOLUTE ADVANTAGE
In economics, the principle of absolute
advantage refers to the ability of a party to
produce a good or service more efficiently
than its competitors.

21. Absolute Advantage
If Pakistan can produce
machinery twice as cheaply as
Britain but cotton three times as
cheaply.

22. DEFINITIONTO 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. (Joshua.p.277)

23. EXAMPLES OF COMPARATIVE
ADVANTAGE
 Japan and Saudi Arabia
 Transaction Cost:Transportation,
information processing
 Example of US manufacturing company
 Comparative advantageVs absolute
advantage, next slide

25. FREETRADE
Prof. Lipsey
A world of Free Trade would be one with no tariffs
and no restrictions of any kind on importing or
exporting. In such a world, a country would import
all those commodities that is could buy from aboard
at a delivered price lower that the cost of producing
them at home.

26. IMPORTANCE OF FREETRADE
 The exponent of free trade argue that no any good is imported
unless its net price to buyers is below then domestic one.
 Free of Captive Market
 Promotes world cooperation
 Improve organization and methods of production
 Competitive Markets
 Prevent Monopolies
 it brings, technology, foreign capital, ideas, skills to developing
countries

27. PROTECTIONISM
In international trade the term protectionism refers
to a policy whereby domestic industries are
protected from foreign completion through the
imposition of tariffs and non tariff barriers, the aim
is to impose restrictions on the imports of low price
products in order to encourage domestic industries
producing high priced products.

28. IMPORTANCE OF PROTECTIONISM
 Protectionism saves jobs/ employment/ end unemployment
 Control unfair trade practices- dumping, subsidies
 reduce dependency
 Free trade increase sanctions-Protectionism is solution
 Protectionism save infant industries
 reduce quality of goods
 increase sellers