International Trade

ADM 113 (2A)                                        Fall 2012                                               Alexa Campbell

Administration                                                                                    Newspaper Article case #4

1. Explain clearly why countries engage in international trade, specifically in terms of the theories of absolute advantage and comparative advantage.  (See Textbook) (1 mark)

According to page 146 in Business, 7th Canadian Edition, absolute advantage is when a nation has the ability to produce something cheaper and/or of higher quality than any other country. Comparative advantage is when a country can produce some products more efficiently than it can other goods. (Page 146, Business, 7th Canadian Edition, Pearson Canada) These theories are the reason why countries engage in international trade. It is more efficient for countries to make products that they have an absolute advantage in making and then trade with other countries who can give them products that they cannot produce as efficiently. “No country can produce all the goods and services that its people need.” (Page 145, Business, 7th Canadian Edition, Pearson Canada) This quote also explains why countries engage in international trade because countries export things that they can produce efficiently to other countries that can’t produce them and then import products that they cannot produce as efficiently as other countries. (Page 145, Business, 7th Canadian Edition, Pearson Canada)  

2. What are the three main categories of barriers to international trade? Explain clearly the purpose of free trade agreements. (See Textbook). Which of the three main categories of barriers to international trade can be eliminated by free trade agreements? (1 ½  marks)

The three main categories of barriers to international trade are social and cultural differences, economic differences and political differences. (Pages 158-159, Business, 7th Canadian Edition, Pearson Canada) The purpose of free trade agreements is to promote international trade between countries and also to remove tariffs and other trade barriers.  (Pages 161-162, Business, 7th Canadian Edition, Pearson Canada)  The category of barriers to international trade that can be eliminated by free trade agreements is legal and political differences. (Page 160, Business, 7th Canadian Edition, Pearson Canada)  

3. What is protectionism? (See Textbook) Which of the three main categories of barriers to international trade does protectionism fall under? Explain clearly how the Canadian dairy and poultry industries are currently protected. (1 ½   marks)

On page 160 of Business, 7th Canadian Edition, protectionism is defined as the practice of protecting domestic business at the expense of free market competition. Protectionism falls under the category of legal and political differences. (Page 160, Business, 7th Canadian Edition, Pearson Canada)  The Canadian dairy and poultry industries are currently protected by tariffs shielding these products from foreign rivals. These tariffs range from 150 per cent to nearly 300 per cent. Canada has two trade policies for farmers and dairy and poultry is very heavily regulated. (“Canada officially joins Pacific trade talks”, Globe and Mail, October 9th, 2012)

4. Explain clearly who in Canada benefits, and how, from the protectionist measures in place in the Canadian dairy and poultry industries. Explain clearly who in Canada is negatively impacted, and how, by the protectionist measures in place in the Canadian dairy and poultry industries. (1 mark)

The Canadian dairy and poultry farmers are the ones who benefit from the protectionist measures in place in the Canadian dairy and poultry industries. They benefit because the tariffs put in place make it hard for foreign rivals to sell to Canada, therefore Canadians are only able to buy products made by Canadian farmers. The tariffs make foreign products more expensive so that Canadians don’t want to buy it. (“Canada officially joins Pacific trade talks”, Globe and Mail, October 9th, 2012) The consumers are being negatively impacted because we are paying higher prices for dairy and poultry than we would have to if the protectionist measures were not in place. There is less competition for the Canadian farmers, so they are able to charge more. If foreign rivals were able to sell their dairy and poultry products to Canada without the tariffs, consumers would be able to purchase dairy and poultry products for much lower prices. (“Canada officially joins Pacific trade talks”, Globe and Mail, October 9th, 2012)