HAT Manifesto Part 1/3 - Rubric Cube - 240804 revision

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 3 Markets and Welfare

Chapter 9 of 36 Application: International Trade

Section 16 of 18

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A country can take one of two approaches to achieving free trade.

-Unilateral approach:

Remove its trade restrictions on its own.

This is what Great Britain did in the 1800s, and Chile and South Korea have done in recent years.

-Multilateral approach:

Reduce its trade restrictions at the same time other countries do.

In this case, a country bargains with other countries to mutually reduce trade restrictions.

…

Two examples of the multilateral approach:

The North American Free Trade Agreement (NAFTA), starting in 1993 reduced trade barriers among the United States, Canada, and Mexico.

The General Agreement on Tariffs and Trade (GATT), an on-going series of negotiations among countries around the world to reduce trade restrictions.

GATT was founded in 1947, mainly in response to the high tariffs imposed during the 1930s Great Depression.

GATT agreements have reduced the worldwide average tariff from an average 40 percent to 5 percent.

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Power to enforce GATT agreements has been assigned to the World Trade Organization (WTO), established 1995.

GATT agreements and WTO enforcement covers most countries and more than 97 percent of world trade.

Functions of the WTO include:

· administer and enforce trade agreements

· provide a forum for negotiations

· handle disputes among member countries

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Advantages of the multilateral approach over the unilateral approach include:

· at the same time can reduce trade restrictions both at home and abroad

· often can win political support when a unilateral approach cannot

An Isoland attempt to unilaterally reduce the tariff on textiles likely would be politically difficult.

The Isoland textile companies whose prices are higher than world price and would lose much business each to imports would focus, organize and oppose tariff reduction.

The Isoland consumers of textiles who would gain a little each from lower price imported textiles are numerous and unlikely to focus and organize in favor of tariff reduction.

If at the same time Neighborland promises to reduce its tariff on wheat in return for Isoland reduction of tariff on textiles Isoland farmers who produce lower than world price wheat and would gain business would focus, organize, and support the tariff-reduction trade agreement with Neighborland.

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From a pure economics viewpoint, the unilateral approach is better, because:

· implementation is simple and immediate

· any decrease in domestic producers’ surplus is more than made up by an increase consumers’ surplus

· politicians and the public in other countries would better understand the economic advantage of low tariffs and would reduce tariffs

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pure economics viewpoint

junsui ni keizai-teki na kanten

純粋に経済的な観点