ECO120 PRINCIPLES OF

ECONOMICS
CHAPTER 11
INTERNATIONAL TRADE
International Trade : Exchange of goods and
services between the people of two countries.
Advantages Disadvantages
1. Increase world output through 1. Depletion of country’s reserve .
specialization & trade. Eg Thailand Continuous exports of raw materials
focusing on the production of can deplete the reserves in the long
agricultural product thus ↑ agr. run. Eg: oil exports from M’sia will
output in the world. deplete reserve if there are too
many exports.

2. Varieties of good & services 2. Economic & political dependent.

(G&S)thus consumers can enjoy This will be disastrous especially
some of the G&S which cannot be when the political r/s between the
produced in their country. Eg: M’sia trading partners worsens.
case: grapes, salmon
 Advantages Disadvantages
3. R/s between trading partners can 3. Transportation costs will make the
be improved. Eg:economic co- international trade become not
operation (ASEAN) profitable venture for some
countries, if the costs is too high.
4. Higher income & Economic Growth.
As more good exported, economic
growth of particular country will ↑
as well as employment.

5. Sharing Knowledge & Tech. eg: M’sia

imports new technology-based
machinery from Japan, then both
countries can share the technology
PROTECTIONISM
A trade restrictions
to protect local
products from
foreign competition.
 Reason for protectionism
Infant Industry
argument Anti-dumping
Low foreign wage New industry argument
argument should be protected Dumping is an unfair
Higher wage rate in from established trade practice because
M’sia → many foreign competitors the imported goods
Indo’sian personally until they have were sold at lower
moving to M’sia → sufficient efficiency price than the price
↑ unemployment EOS to compete. charge in the local
for M’sian market. Local business
will bear loss.

Domestic employment
argument
National Security
Argument As the domestic
producer can’t
Such as
Reason
compete with foreign
manufactured of producer, many
aircraft & weapons domestic producer will
should be produced leave the industry →
by the country ↑ unemployment
itself.
 Tools for Protectionism
2. Quotas 3. Embargoes
A limitation imposed Bars trade with
on the quantity another country
imported Eg: only 10 including a ban on
1. Tariffs. 000 units of tv set goods. Eg: M’sia
A tax imposed by the from Japan can be bans goods from
gov. on imports. It will ↑ imported for this Israel
the P of imported good year.
& gov . R.
Types: 5. Exchange control
a) Specific Tariff (based 4. Industry Subsidy Gov limit the amount
on qty of good) Gov providing subsidy of money allowed to
b) Ad Valorem Tariff for local firm since it be brought into & out
may help to reduced of a country. Eg:
the production cost of restriction on the amt
a firm. of US $ can be used