International Trade

Why countries trade and who wins or loses when they do; how tariffs, import quotas, voluntary export restraints and export subsidies change prices, surpluses and national welfare; and why countries form free trade areas, customs unions, common markets and economic unions, including trade creation, trade diversion and what deeper integration means for investors.

1. 1. Why countries trade: the benefitsTrade lets each country specialise in what it does relatively cheaply, sell into bigger markets and face more competition, so the world as a whole consumes more than it could in isolation.Free13 min
2. 2. Costs of trade: winners, losers and adjustmentOpening to trade expands export industries and shrinks import-competing ones, so displaced workers and capital bear real adjustment costs even though the economy as a whole gains.11 min
3. 3. Trade restrictions and tariffsA tariff raises the domestic price, which helps local producers and the treasury but hurts consumers by more, leaving a small country with a deadweight loss; only a large country can possibly gain, and only at its trading partner's expense.Video · 6 min15 min
4. 4. Quotas, VERs and export subsidiesAn import quota can raise the same price as a tariff, but the gain that would have been tariff revenue becomes a quota rent, and whoever captures it decides how much the importing country loses; export subsidies always reduce welfare.14 min
5. 5. Trading blocs: from free trade areas to economic unionsRegional trading blocs are steps on a ladder of integration: each level keeps everything from the level below and adds one more thing, from free internal trade up to a common currency.Video · 6 min11 min
6. 6. Trade creation, trade diversion and the costs of integrationA trading bloc helps its members when it replaces costly home production with cheaper partner imports (trade creation), but it can hurt when it swaps a cheaper outside supplier for a costlier partner (trade diversion), and deeper integration also limits independent policy.13 min