International economics: theory, policy, and trade

International economic theories and policies have a double role: to explain and to regulate. On one side, the international economic theories explain the international economical environment where exchanges are produced, as well as general laws that govern this environment. The international economic policies create a regulatory environment, with rules under which these exchanges are produced.

The mercantilist view on trade evoked two main characteristics. One of them referred to the fact that the ideal for of richness was money or precious metals. The second basic idea revolved around the idea of profit, its origin and role. The first characteristic implied the fact that the balance of payment always had to be positive, so as to increase the country's reserve.

The absolute advantage was defined by Adam Smith and referred to the fact that the producer on the international market that could commercialize products that had lower production costs had an absolute advantage regarding all other producers. In this sense, Adam Smith suggested that it would be more profitable to buy from the international market those goods that were produced by foreign producers at lower costs. In this sense, he laid the basis for the liberal current of thought in trade.

The comparative or relative advantage was the central idea of Ricardo's theory of comparative costs of production and sustained the fact that even if a country did not have an absolute advantage, free trade could still be in its advantage, because of a comparative advantage. This referred to the quantity of work being used and to this quantity of work (and time) being relatively less compared to another quantity necessary to produce the same good in another country.

9. The tariff is a catalogue or a list that comprises the products that are subject to duty, as well as the amount of taxation (quotas) for each product. The tariffs are of two kinds: simple and compounded. The first category has only one column for all products, no matter their country of origin. The compounded ones have two or more categories of duty taxes and apply to different countries that the respective country has previously signed commercial treaties with.

The quotas are duty import taxes that are perceived as a percentage of the total value of the good. They are also called ad-valorem and refer the value of the good at the frontier. The value of the good is expressed in the national currency at a quotation advised by the IMF.

Export taxes are perceived by the state for national goods that are exported. They have a budgetary motivation, or one of the two others (see below question 11).

Export subsidies are forms of encouragement from the state to national producers. The state agrees to sustain some of the costs of production. The effect is that the producers can in this way become more competitive on the international market because they will be able to practice lower prices.

12. Dumping has several definitions. On one hand, dumping is considered selling on a foreign market at a price lower than that practiced at home. Secondly, dumping can also be defined as selling below your costs of production (in the sense that it would actually contravene with the main economical motivation, that of having profit). Thirdly, dumping can also be defined as selling below a generally agreed on international price for the respective good. Price discrimination generally refers to selling outside the most favored nation clause that is at different prices for different countries within the WTO system.

13. The commercial policies of the United States are a combination between liberalism and protectionism. On one hand, the United States claim to practice and advocate liberal trade at all WTO conferences. On the other hand, however, many of its products are protected. This all started after the Second World War, when Japan proved a new and serious competition. The American market was invaded by Japanese products, usually at lower costs, so that the Americans were finally confronted with a problem that only had one solution: protectionist measures. Of course, the Japanese had a way around it and instead of exporting their goods, they increased their direct investments in the United States.

Currently confronted with a negative balance of payments the U.S. practice protectionists measures which include export subsidies for steel and agricultural products, only to mention two of the most important categories.

21. The numerous advantages that a multinational corporation brings to the host country are counter balanced by some of the problems it also generates. Among these, one of them would be the exploitation of local workforce, sometimes at derisory wages. Cases to be mentioned here are numerous- we only have to think of countries like India and Pakistan, as well as parts of Africa.

Another problem is the export of capital. Profit is obviously the main incentive for multinational corporations that will then export the capital they have made on the national soil. These will lead to a seriously downturn in the balance of payments.

Thirdly, we can but remember some of the ecological disasters that were caused by or a direct consequence of multinational corporation implanted in the area. India springs to mind again, mainly because of the fact that numerous victims died with that occasion.

22. The balance of payments refers to all transactions between residents and foreigners that generally are accounted for during a year. The balance of payment comprises two accounts: the current account and the capital and financial account. The current account comprises all transactions that do not revolve around capital or financial transactions, while, of course, the capital and financial account comprises all these.

23. It is common knowledge that for the last few years, the balance of payments of the United States has been seriously deficitary. This is mainly because the value of imports has exceeded the value of exports. The high value of imports was encouraged by the high demand for consumption goods that characterized the booming period of the 90s. The recession that has reached the States with the last years of the 90s did not seem to improve the balance of payments.