Chapter 12:

International Trade
DIAZ, Camille O.
MANANSALA, Daryll B.

 International Trade refers to

exchange of goods and services
between one country and other
countries.

Bases of International Trade

Distribution of Economic Resources- The distribution of
natural resources , labor and capital goods among
countries is not even
Technological Efficiency- All other things being equal, a
country which has the most efficient technology can
produce goods at the lowest price with best quality and
highest quantity.

Importance of International
Trade
Economic deals with proper allocation and efficient use
of scarce resources.
International economics is also concerned with allocation
of economic resources among countries.
The best products are produced and sold in a free
competitive market, such benefits of production
efficiency like better quality and lower price are available
to all peoples of the world.

Mercantilism
an economic system to increase a nation's wealth by
government regulation of all of the nation's commercial
interests.
The capitalist provided the raw materials, tools of
production and building for the workers.

Ideas of Mercantilism
A group of thinkers greatly contributed to the development of capitalism. Their
mercantilistic thoughts were opposed by the landed nobility and churchmen.
Most known mercantilist thinker is Thomas Mun
- He authored one of the classics of economics, Englands Treasure by Foreign
Trade. Mun argued that ordinary way to increase our wealth and treasure is to sell
more to foreigners than we buy from them.
Niccolo Machiavelli , statesman of Florence and the intellectual leader of the
Renaissance, supported the idea of supremacy of the state over all other sources
of power.
Antonio Serra wrote Brief Treatise on the Causes Which can Make Gold and
Silver Plentiful in Kingdom Where There are No Mines. He maintained the
superiority of industrial products over those of agriculture as far as exports and
profits were concerned

Economic Liberalism
Mercantilism was both a political and economic doctrine
which believed that the power and prestige of any nation
depended on its accumulation of gold and silver.
The fall of mercantilism as an economic doctrine
strengthened the cause of economic liberalism.
Many opposed state regulations and restriction of
economic activities. They were in favor of a free market
in increasing output and lowering cost of production.

The classical Theory of

Comparative Advantage
A country should export those goods in which it has the
greatest advantage and import those goods in which it has
the greatest disadvantage
Message of the theory is that countries should specialize
in the production and export goods and services in which
they have the greatest advantage, because this is most
profitable for them.

Growth of international
trade
1. free trade - occurs when there are no artificial barriers put in place by
governments to restrict the flow of goods and services between trading nations.
Advantages free trade:
Increased production - International trade increases the size of a firms market,
resulting in lower average costs and increased productivity, ultimately leading to
increased production.
Production efficiencies - Free trade improves the efficiency of resource
allocation. The more efficient use of resources leads to higher productivity and
increasing total domestic output of goods and services.
Economic growth - he countries involved in free trade experience rising living
standards, increased real incomes and higher rates of economic growth. This is
created by more competitive industries, increased productivity, efficiency and
production levels.

 Disadvantages of free trade

With the removal of trade barriers, structural unemployment
may occur in the short term - This can impact upon large
numbers of workers, their families and local economies. Often
it can be difficult for these workers to find employment in
growth industries and government assistance is necessary.
Free trade can lead to pollution and other environmental
problems - as companies fail to include these costs in the price
of goods in trying to compete with companies operating under
weaker environmental legislation in some countries.

The Revival of Nationalism

Trade Descriptions Act 1968 - The Act makes it a criminal offence to apply a
false trade description to goods. The Act covers descriptions given both verbally
and in writing. It covers any factual statement about the physical qualities of the
product.

Consumer Protection Act 1987 - The Consumer Protection Act governs both
the pricing of products and product safety. The way in which prices are presented
to customers is controlled by a very detailed code of practice. This covers most
forms of promotional marketing. There are rules which deal for example with
how sale prices can be claimed, introductory offers, recommended prices and free
offers.

Economic Nationalism in
the Philippines
Colonial economy - refer to the system of production and consumption
which were introduced in the colonies by the colonialist in order to fulfill
their economic demands such as raw materials, markets, area for investment
and areas for settlement. The colonial state played vital role establishing and
controlling colonial economy.
BACKGROUND OF COLONIAL ECONOMY - After the colonial state had
take over the colonies the next step was to establish colonial economy. This
was to establish colonial economy. This was basically the primary purpose of
the European conquest of Africa in the last quarter of the 19th century. The
purpose of establishing colonial economy was to ensure constant supply of
raw materials, cheap labor, market ,area for investment and area for
settlement. During that period African self-sufficient economies were
transformed and made inferior

Economic Nationalism
Defined

is a body of policies that emphasize domestic control of the economy, labor, and capital formation, even if
this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital.

Claro M. Recto (1890-1960) was a Philippine

nationalist leader and president of the 1934
constitutional convention. He was one of the most
vocal advocates of Philippine political and social
autonomy.

Joaquin Roces- publisher of the manila

times describe colonial exploitation and
the meaning of economic nationalism

Barriers of International
trade
The most common barriers to trade are tariffs, quotas, and nontariff
barriers.
1. Tariff - is a tax on imports, which is collected by the federal government and which
raises the price of the good to the consumer. Also known as duties or import duties,
tariffs usually aim first to limit imports and second to raise revenue
2. Quota - is a limit on the amount of a certain type of good that may be imported into
the country. A quota can be either voluntary or legally enforced.

Trade Protection for the less

Developed Countries
The theory of free trade is basically based on the concept
of comparative advantage. Industrial countries should sell
finished products while agricultural countries should sell
raw materials.