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ECL1110- ESSENTIALS

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ECL1110- ESSENTIALS

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lexasarte84
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CALMA, Maria Abigail C.

FAVILA, Louis Rox J.


SARTE, Alexa C.

International Perspective:
Essentials of International Trade and Investment

Mercantilism is considered one of the founding economic theories, coined by


Adam Smith and developed by a group of writers from England around the 16th to 17th
century. It was described by Smith as a system utilized to increase wealth within a
country through a restriction in imports and increasing exports. Mercantilism states that
the wealth of a country may be determined by the amount of gold and silver they possess.
It prioritizes gold and silver over monetary value. They believe that promoting exports
leads to more economic growth, because it is believed to avoid a trade deficit wherein
there is an imbalance in the value of import and the value of export. Its main objective is
to achieve trade surplus wherein the value of exports exceeds the value of imports. In
modern day Russia still incorporates a Mercantilist system, as it heavily relies with their
forms of government policies regarding control foreign trade. The country still heavily
relies on trading, and they sought more exports due to pricing their goods on a lower
price.

Tariffs are defined as tax imposed on imported goods and services in every country.
It is considered as a “custom duties” on merchandise, and helps protect local goods from
foreign competition. By imposing taxes on foreign goods and limiting its competitiveness
against local goods, tariffs provide opportunities for the development of local goods.
Tariffs are specific and depend on the country of export and country of import, is it
possible to lower it once there is a trade agreement. Government policies determine how
much tariff will be added depending on the goods. Higher prices due to the added tariffs
often lead to a decrease in the demand of imported goods. As prices significantly
increase, consumers may switch to alternative products or locally produced goods which
are cheaper. Although it protects local produce, it has negative consequences on the
economy. For instance, high tariffs are responsible for an increase in inflation by about ¾
percentage. It is important to impose tariffs in a moderate way, and avoid exploiting it, as
it can lead to negative economic effects.

International Trade Center (ITC) is a joint agency of the World Trade Organization
and the United Nations. One of its missions is to encourage sustainable economic growth
and to help achieve Millenium Development Goals in countries incorporating trade and
international business development. Its strategic goals are to enhance awareness and
access to trade intelligence, improve trade support organizations, regulate policies to
benefit exports, and integrate inclusivity and sustainability into trade and export
development strategies.

Trade can be observed in European countries, which support the regional economy
by exchanging agricultural goods. Spain mainly produces fresh products such as oranges,
olives and tomatoes. These are traded to nearby countries like Germany, Netherlands and
Spain. In exchange, Spain is mainly the producer of machines and pharmaceuticals. This
trade can stimulate economic growth as it increases market access on local producers,
increasing employment rate and development in the supply chain. It also improves
countries’ relationship with each other and strengthens its economic ties.

Trade within an industry is referred to as intra-industry trade, whereas trade


between nations within a region is referred to as intraregional trade. The European
automobile industry, which involves the trade of automobiles and their components
between Germany, France, and Italy, is an example of intra-industry trade. By increasing
productivity and generating jobs, this specialization boosts regional economies by
encouraging competition and innovation. Intraregional commerce fosters stability within
the region, eases knowledge transfer, and fortifies economic relationships.
Trade in services is the cross-border exchange of intangible goods such as
financial services, travel, healthcare, and education. It is essential for economic expansion
since it boosts GDP, generates employment, and encourages innovation. For example,
nations like Thailand and Spain export tourism services, drawing millions of tourists who
spend money on activities, dining, and lodging. This migration stimulates local
economies, helps small companies, and raises taxes that can be used to fund public works
projects and infrastructure. The expanding digital economy also improves trade in
services, enabling international access and cooperation.

Trade and investment are very instrumental in economic development as they spur
growth, generate employment, and boost productivity. With greater access to the market,
trade lets countries specialize in the production of goods and services that it has
comparative advantage over. This consequently leads to increased exports, economies of
scale, and better resource allocation. Investment whether domestic or foreign underpins
capital formation, technology transfer, as well as further skills development, all of which
lead to enhanced productivity and innovation.

China is a very strong example because its infrastructural development has been
greatly boosted by FDI. Companies that have invested in China have, over the years,
developed some of the world's best modern means of transport, energy projects, and
manufacturing facilities, resulting in millions of jobs and having lifted millions out of
poverty. That was basically part of the transformation process that enabled China to be
one of the biggest economies in the world.

It discusses key economic concepts like mercantilism, tariffs, and trade.


Mercantilism, highlighted by Adam Smith, focuses on increasing national wealth through
a trade surplus, with the country Russia embodying its principles by controlling foreign
trade and promoting exports. Tariffs are taxes on imports that protect local industries but
can also raise inflation and reduce demand for foreign goods. The International Trade
Center (ITC) promotes sustainable growth and trade development. Additionally, intra-
industry and intraregional trade foster economic ties and innovation, while trade in
services boosts GDP and local economies, as seen in tourism in countries like Thailand
and Spain.
REFERENCES

European Commission. (n.d.). Tariffs. https://trade.ec.europa.eu/access-to-markets


/en/content/tariffs-0

International Trade Centre. (n.d.). Agency strategies and coordination. https://www.enter


prise-development.org/agency-strategies-and-coordination/international-trade-centre-itc/

Investopedia. (n.d.). Mercantilism. https://www.investopedia.com/terms/m/


Mercantilism.asp

White House Council of Economic Advisers. (2024, July). Tariffs as a major revenue
source: Implications for distribution and growth. https://www.whitehouse.gov/cea/
written-materials/2024/07/12/tariffs-as-a-major-revenue-source-implications-for-
distribution-and-growth/

World Trade Organization. (n.d.). Tariffs. https://www.wto.org/english/tratop_e/


tariffs_e/tariffs_e.htm

Worldbank.org.https://www.worldbank.org/en/topic/trade/publication/trade-and-
development

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