International Trade

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What is trade diversion?

When joining a trade bloc causes imports to shift from low-cost non-members to higher-cost member countries.

What is a customs union?

A trade bloc with free internal trade and a common external tariff on non-members.

What is a drawback of free trade for developing countries?

They may struggle to compete against more developed industries and face job losses in uncompetitive sectors.

What does the World Trade Organization (WTO) aim to do?

Promote free trade by encouraging the reduction of trade barriers and resolving disputes.

What is a tariff?

A tax on imported goods that raises their price to reduce import demand.

How do production subsidies protect domestic firms?

They lower production costs, allowing domestic firms to compete with foreign imports.

What is a monetary union?

An economic union with a shared currency and common monetary policy (e.g., the Eurozone).

What is a free trade area?

A group of countries that remove trade barriers between themselves but retain individual policies with outsiders.

What is the main economic argument for trade protection?

To protect domestic industries and jobs, especially in infant or strategic sectors.

What is a quota?

A legal limit on the quantity of a good that can be imported into a country.

What diagram shows the impact of a quota?

A demand and supply diagram with a vertical line representing the import limit, leading to higher prices.

What is free trade?

International trade without government-imposed restrictions such as tariffs, quotas, or subsidies.

What diagram shows the effect of a tariff?

A demand and supply diagram showing a world price with the tariff shifting the price upward and reducing imports.

What is a common market?

A customs union with free movement of goods, services, capital, and labor.

What is dumping in international trade?

Selling goods abroad at below cost or below domestic prices, often leading to unfair competition.

What is the main economic argument against trade protection?

It leads to inefficiency, higher prices, and potential retaliation from trading partners.

Why might a government use protectionist policies?

To reduce unemployment, protect infant industries, or improve the current account.

List two benefits of free trade.

Increased efficiency and consumer choice, and access to a larger market.

What is trade creation?

When joining a trade bloc leads to the replacement of high-cost domestic production with lower-cost imports from members.

What is an export subsidy?

A payment by the government to domestic firms to encourage exports by lowering costs.

The Curious Economist

Economic news for students

International Trade in the News

Canada Pulls U.S. Alcohol from Shelves in Retaliation for Trump Tariffs

Trump Slaps 25 percent Tariffs on Steel and Aluminum

Round 2: China Hits Back with Retaliatory Tariffs and Economic Countermeasures

China Slashes Tariffs for Developing Nations

China Hits Back with Brandy Tariffs as Trade Tensions Escalate

Is China Going Through Mexico to Bypass US Tariffs?

Kentucky Bourbon Industry Braces for Potential 50% EU Tariff

China Welcomes Colombian Beef: Brazil Braces for Market Shifts!

Kleenex to Wipe Away Its Canadian Operations

Pakistan registers a Q3 current account deficit of $3.4 billion

Australia likely to go to the WTO if China extends wine tariffs

An online shopping boom is fueling ships across the Pacific

China to impose an 80.5% tariff on Australian barley exports

Kenya and the US look set to sign a free-trade deal despite Trump’s attacks on global trade

Phase one of the US-China trade deal signed!