International Trade Policies and Economic Models

Foreign Trade and the European Domain

There are two main economic models in international trade policy:

Free Trade

Free trade was the key framework from 1750 to 1875, sponsored by Britain. Until that time, Britain was the sole exporter but had to import raw materials. Exports began to suffer due to the arrival of newly industrialized countries into international markets.

Protectionism

From 1875, protectionism began to be imposed, a trade policy that continues to be used today. The instruments of protection include:

• Tariffs: A tax on the value or quantity of goods entering the country. Its function is to increase the selling price of the imported product so it is no longer lower than that of the national product.
• Licensing: This involves the prior permission of authorities for the introduction of goods. Permissions depend on market conditions.
• Quotas: These consist of setting a limit on free access; any amount exceeding the specified quota is subject to a tariff.
• Administrative or Covert Protection: The prohibition of certain products entering the country to protect local industries.

Intermediate Position and Infant Industries

It is common for countries to adopt transitional protectionism. This is carried out by countries that remain supporters of free trade but find protectionist measures appropriate in specific cases. This protectionism aims to protect emerging sectors (infant industries) that are determined to have high costs and are therefore uncompetitive.

International Trade Growth and the RRI Indicator

Within this activity framework, we see the result of the growth of international trade among producer countries, food exporters, and manufacturers. We use an indicator, the RRI (Terms of Trade), calculated as RRI = RX / PM. This measures the ratio of export prices to import prices. A country is favored by an increasing RRI.

Economic Theories: Keynes and Singer-Prebisch

To analyze this, we use two main theories:

• Keynes: Examines the price elasticity of supply. The supply of natural resources, especially the land factor, tends to be inelastic. The supply prices of commodities tend to rise as demand for industrial goods grows, while the supply of industrial goods tends to be elastic and their prices tend to decrease.
• Singer-Prebisch: Uses the income elasticity of demand. It posits that the demand for primary goods tends to be inelastic with respect to income; therefore, prices fall. The demand for industrial goods tends to be more elastic and is more sensitive to income; as consumers have more income, they consume more, and therefore, prices tend to rise.