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CHP 6
CHP 6
Chapter 6
International trade
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.2
International trade
• Objectives
• Introduction
• International trade theory
• Barriers to trade
• Non-tariff barriers to trade
• Other economic developments.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.3
Objectives
• Define the term international trade and discuss
the role of mercantilism in modern international
trade.
• Contrast the theories of absolute advantage and
comparative advantage.
• Relate the importance of international product life
cycle theory to the study of international
economics.
• Explain some of the most commonly used barriers
to trade and other economic developments that
affect international economics.
• Discuss some of the reasons for the tensions
between the theory of free trade and the
widespread practice of national trade barriers.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.4
Introduction
• International trade: the branch of economics
concerned with the exchange of goods and
services with foreign countries.
• We will focus on:
– International trade theory
– Barriers to trade.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.5
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.6
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.7
Mercantilism
• A trade theory which holds that a government
can improve the well-being of the country by
encouraging exports and stifling imports.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.8
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.9
It follows that:
• If North produces cloth and South produces grain, and an
exchange ratio can be arranged, both the countries will benefit
from trade.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.10
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.11
• North has an absolute advantage in the production of both cloth and grain but
the relative costs differ (i.e. gains from trade).
• In North, one unit of cloth costs 50/100 hours of grain.
• In South, one unit of cloth costs 100/100 hours of grain.
It follows that:
• If North can import more than a half unit of grain for one unit of cloth, it will
gain from trade.
• If South can import one unit of cloth for less than one unit of grain, it will also
gain from trade.
• Under the circumstance presented in the above example, both countries can
benefit from trade.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.12
No single theory can explain the role of economic factors in trade theory.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.13
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.14
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.15
Other considerations
• Government regulation
• Consumer tastes
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.16
Barriers to trade
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.17
Types of tariffs
• Import and export tariffs: a tax levied on
imports or exports of a country.
• Transit tariff: a tax levied on goods passing
through the country.
• Specific duty: a tariff based on the number of
items being imported.
• Ad valorem duty: a tariff based on a percentage
of the value of imported goods.
• Compound duty: a tariff consisting of both a
specific and ad valorem duty.
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.20
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.23
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.24
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.25
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
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Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009
Slide 6.27
Alan M Rugman and Simon Collinson, International Business, 5th Edition, © Pearson Education Limited 2009