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International Trade and Finance Weekly Class Notes CA$22.88
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International Trade and Finance Weekly Class Notes

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This course examines various concepts and applications of international trade, finance, and investment, and highlights the implications for the economy and businesses. Students gain insight into the benefits of free trade in goods/services and in resources across national borders. Notwithstanding t...

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  • August 25, 2023
  • 226
  • 2023/2024
  • Class notes
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AndreaMcDonald
WEEK 1
Chapter 1: International Economics is Different

What is a Nation?
● The existence of nations makes international economics distinct from the rest of
economics
● International economics is about economic relations among nations
● However, nations are sovereign, which is critical
○ No central court can enforce its will on nations with a global police force
● A nation can ignore the interests of foreigners
● A nation can have:
○ Its own currency (own exchange rate and monetary policy)
○ Its own barriers to international trade (trade policy)
○ Its own government taxing and spending (own fiscal policy)
○ Its own laws of citizenship and residence (own immigration policy)

Four Controversies
● Four controversial developments that frame the scope of what we will learn in
international economics
○ Trade War of 2018
○ Immigration
○ Brexit
○ China’s exchange rate regime
● We will use these issues to outline key ideas and concepts of international
economics

The Trade War of 2018
● By mid-2018, the United States had instigated a trade war.
● Trade deficits (e.g., with China, Mexico & other countries) were used as evidence
to support arguments for protectionist tariffs & U.S. withdrawal from, or
renegotiation of, trade agreements.
● In January 2017, the United States:
○ Withdrew from the Trans-Pacific Partnership (TPP)
○ Launched U.S. International Trade Commission (USITC) investigations
● In 2018, USITC concluded that rising imports had harmed U.S. firms in several
industries.
● As a result, the U.S. imposed (temporary) safeguard tariffs ( > 30%) on imports of
washing machines & solar panels.

, ● The US Department of Commerce (USDC) found that imports of steel &
aluminum threatened national security.
● Concerns that steel & aluminum imports threatened national security resulted in
tariffs on steel imports of 25% & 10% on imports of aluminum.
● Initially, temporary exemptions were granted on imports of these products from
Canada, Mexico, the European Union (EU), Argentina, Australia, Brazil & South
Korea.
● Under the threat of tariffs, South Korea & Argentina agreed to voluntarily limit
their exports (i.e., to a VER) and Brazil agreed to quotas on its exports.
● In June of 2018, the U.S. ended the temporary exemptions & imposed tariffs on
steel and aluminum from all countries, except Australia.

● In response to U.S. tariffs, exporting countries imposed retaliatory tariffs on U.S.
exports.
● In March of 2018, the U.S. threatened to impose tariffs on Chinese imports to
retaliate against a range of unfair trade policies & practices towards U.S.
intellectual property.
● China threatened retaliatory tariffs to counter U.S. threats.
● The U.S. brought a complaint against China to the World Trade Organization
(WTO), alleging violation of intellectual property rules.
● In July of 2018, the trade war escalated, with the U.S. imposing tariffs on imports
from China and China retaliating.

● What are the expected results of the imposition of tariffs by the United States &
retaliation by other countries?
○ Impediments to free trade impact producers & consumers in exporting and
importing countries, as well as the world as a whole.
○ Economic analysis concludes that trade is a positive-sum activity (rather
than a zero-sum activity) and both countries generally gain from trade ↔
recall theory of comparative advantage.
○ Economic analysis also suggests that the overall trade balance, rather tan
the trade balance with individual countries is what matters.

Immigration
● About 260 million people, about 3% of the world’s population, live outside the
country of their birth.
● For most industrialized countries – the exception is Japan – the percentage of
the country’s foreign-born population is relatively high, ranging from 13% for the
United States to 29% for Switzerland.
● In addition, this proportion has generally been rising → controversy.

, ● Many of the foreign-born are illegal immigrants—over one-quarter of the total for
the U.S.
● Immigration policies have been set in place to restrict and reduce immigration.
● There have been several failed efforts to comprehensively reform immigration
policies in the United States

● Opponents of immigration stress a range of problems they believe arise from
immigration, including:
○ General losses to the economy
○ The fiscal burden from immigrants’ use of government services (e.g.,
health care, schooling, etc.)
○ Slow integration of immigrants into the new national culture, values, and
language
○ Potential of increased crime
○ Links of some immigrants to terrorism
● How much harm do immigrants do to the receiving country? What do we think?

● Job-seeking immigration brings net economic benefits, not only to the
immigrants, but to the receiving country as a whole.
● However, there are always winners and losers.
○ Winners include the firms that employ the immigrants & consumers who
buy the products.
○ The group that loses is the workers who compete with the immigrants for
jobs.
○ The net effect is positive – the winners win more than the losers lose.

Brexit
● In June 2016, voters in the United Kingdom (UK) voted 52% to 48% to leave the
European Union (EU) → narrow margin.
● Key features of the EU are:
○ Customs union, which eliminates tariffs between EU members & imposes
a common external tariff (CET)
○ Single market which promotes free movement of goods & services,
financial capital & people among EU members, and
○ Common currency (the Euro) & common monetary policy (implemented by
the ECB)

● Differences in the “Brexit” vote were geographic:
○ London, Scotland and Northern Ireland voted to remain in the EU.
○ The rest of England (outside London) and Wales voted to leave the EU.

, ● Differences in the “Brexit” vote were demographic:
○ Younger and more educated people voted to remain.

● Proponents of “stay” stressed economic benefits to the UK of EU membership.
○ Net benefits from trade, immigration from other EU countries & the
dominance of London as a financial center
● Proponents of “leave” stressed re-establishment of British sovereignty.
○ Ability to set own policies
○ Ability to control immigration
○ Use contributions to EU for its own use

● Challenges for Britain & the rest of the EU to resolve:
○ What will be the status of the border between Northern Ireland (part of the
UK) & Ireland? Note: the island of Ireland (Northern Ireland & Ireland)
functions as one economy.
○ What tariffs & customs procedures will exist for trade between Britain and
the EU?
○ Will there be differences in product regulations & standards between
Britain & the EU, and how will these apply to trade?
○ Will there be new barriers to trade in services? Specifically, to what extent
can London banks continue to sell financial services to EU firms and
residents?
○ Will Britain be able to negotiate its own free-trade agreements with outside
countries?
○ Will Britain continue to benefit from the more than 35 free-trade
agreements the EU has with other countries?
○ What policies will oversee migration between Britain & the EU?
○ To what extent will Britain continue to pay the EU?

● Options for Britain in leaving the EU:
○ A ‘hard Brexit’ – complete break with the EU – which might be disruptive
to British companies, industries & jobs.
○ A ‘soft Brexit’ – e.g., Britain shifts to customs union with the EU & accepts
many ‘single-market’ rules but is not formally an EU member – which
allows for much less sovereignty. Britain would have no formal role in
enacting or changing EU laws & regulations.

China’s Exchange Rate
● An exchange rate is value of a country’s currency in terms of some other
country’s currency (e.g., US$/C$ = US$0.83).

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