[4] Bertil Ohlin actually published this theory in 1933. A brief explanation of the Heckscher-Ohlin theory can be found under nobelprize.org/educational_games/economics/trade/ohlin.html. [13] A commonly used and publicly available CGE model and a comprehensive database are available in the Global Trade Analysis Project, which is hosted in the Department of Agricultural Economics at Purdue University. The GTAP model and database are available on www.gtap.agecon.purdue.edu/default.asp. Yi notes that tariff reductions have a much greater impact on these global supply chains than on traditional trade. To take the example of the lawsuit, suppose that China, Bangladesh and the United States have each reduced their tariffs by 1% and imported fabrics and buttons account for half the cost of the chinese-made suit; then, the cost of manufacturing the suit in China will be reduced by 0.5%. In conjunction with the 1% U.S. tariff cut, the cost to U.S. consumers would be reduced by 1.5 percent. If the lawsuit had been produced entirely in China, the cost to the consumer would have been reduced by reducing U.S.

tariffs or by just 1%. Multilateral trade liberalization, in which all countries reduce their trade barriers in parallel, promotes trade in the best possible way on the basis of comparative advantages. A company established in a sector that required considerable capital investment and knowledge had a huge advantage over its potential competitors. Its production series were large, so it was possible to produce products at low marginal cost. And the capital investment for a new competitor would be significant. In economic theory, the cost of all factors of production likely to cross borders would entail equal costs in all trading countries if the factors of production were entirely mobile. This would mean that the basis of comparative advantage for trade between countries would diminish and that there would ultimately be less international trade. In addition to reorienting trade and creating trade, which are essentially static effects, participants in free trade areas and customs unions are also seeking dynamic advantages, such as .B. an expansion of production, as firms take advantage of the growing size of the market to increase production, and increased efficiency as firms adapt to increasing competition.

Access to a larger market is particularly important for small countries whose economies are too small to justify large-scale production. The WTO Agreements recognize that RTAs can benefit countries as long as their objective is to facilitate trade between their parties. They also recognize that, in certain circumstances, these agreements could harm the commercial interests of other countries. Normally, the establishment of a customs union or free trade area would be contrary to the WTO principle of non-discrimination against all WTO Members (“most-favoured-nation treatment”). However, Article 24 of the General Agreement on Tariffs and Trade (GATT), Article 5 of the General Agreement on Trade in Services (GATS) and the enabling clause (paragraph 2(c)) allow WTO Members to conclude RTAs as a special exception provided that certain strict criteria are met. When analyzing the effects of a surplus or deficit, economists often look at “trade” in a very general way. In general, economists do not consider the simple balance sheet of trade in goods to be relevant as the “current account”, which includes the balance of trade in goods and services, as well as international net income (transferred profits from foreign investment, royalty payments, interest and dividends) and unilateral transfers (foreign aid and foreign transfers of persons). With the exception of unilateral transfers, all of these elements are included in our trade agreements.

This happens for some products as a result of multilateral trade negotiations. For example, a country often lowers tariffs on products that are not sensitive to imports – often because they are not manufactured in that country – more than duties on import-sensitive products. In a free trade agreement where the end result is zero tariffs, this would have no effect if the agreement is fully implemented. However, during the transition period, it may well be relevant for some products. Apart from this exception, however, the removal of tariffs or other barriers to trade increases trade in the product, and this is the intention of the trade agreement. Of course, to succeed in a neo-mercantilist strategy, a country needs access to other markets, as provided for in the gradual liberalization of trade barriers within the framework of the GATT/WTO. Neo-mercantilists typically focus on key industries chosen by the government, a strategy known as industrial policy. A successful industrial policy requires a far-sighted government. Japan had an extremely competent group of officials in the Ministry of Industry and Trade (MITI), which oversaw its industrial policy and was basically immune to political pressure.

While the MITI has had many successes, it has also made some missteps. For example, in planning to develop a world-class auto industry in the 1950s, MITI officials initially believed they had too many automakers and urged Honda to merge with another company. Instead, Honda decided to invest in the United States and became a leading automaker. In order to minimize the possible negative effects of these trading blocs, Article XXIV of the GATT requires members of a customs union or free trade agreement to remove barriers to trade for “almost all” trade relations between them and that all GATT members have the opportunity to review the agreement. In the event that a GATT member that is not a party to the customs union faces higher tariffs on certain products when establishing a customs union, Article XXIV requires that member to be compensated for the loss of trade. However, as noted in Chapter 2, Article XXIV has proven to be totally ineffective in limiting the growth of trading blocs; As a result, trade flows are now heavily distorted by these preferential regimes. Companies that generate revenue as a result may well hire more workers and potentially increase dividends paid to shareholders. This money is distributed several times in the economy, as a result of what economists call the money multiplier effect, which states that for every dollar a person receives as income, part of it is spent (i.e. consumption) and a portion is saved.

When individuals save 10% of their income, for every dollar earned as income, 90 cents is spent and 10 cents is saved. The 90 cents that are spent then become income for another person, and again, 90% of that is spent on consumption. .