International trade cooperation

Backround of the Ricardian trade theory

Definition comparative advantage

The Ricardian theory of trade is a theory of international trade developed by the English economist David Ricardo in the early 19th century. According to this theory, countries should specialize in producing and exporting the goods and services that they can produce relatively efficiently and cheaply, and import the goods and services that it is relatively inefficient or expensive to produce domestically.

The theory is based on the idea of comparative advantage, which states that a country has a comparative advantage in producing a particular good or service if it can produce it at a lower opportunity cost than other countries. Opportunity cost is the value of the next best alternative that must be given up in order to pursue a certain action. For example, if a country has a comparative advantage in producing wheat, it means that it can produce wheat more efficiently and cheaply than other countries, even if it is not the most efficient producer of wheat in absolute terms.

According to the Ricardian theory, countries should specialize in producing and exporting the goods and services in which they have a comparative advantage, and import the goods and services in which they have a comparative disadvantage. This specialization allows countries to take advantage of their comparative advantage and increase their overall economic efficiency and prosperity.

The Ricardian theory of trade argues that international trade is beneficial for countries because it allows them to specialize in producing the goods and services that they can produce relatively efficiently, and import the goods and services that it is relatively inefficient or expensive to produce domestically. This specialization leads to increased economic efficiency and prosperity for all participating countries.

The basic rationale behind the Ricardian theory of trade is :

1. Countries should specialize in producing and exporting the goods and services that they can produce relatively efficiently and cheaply, and import the goods and services that it is relatively inefficient or expensive to produce domestically.
2. This specialization is based on the principle of comparative advantage, which states that a country has a comparative advantage in producing a particular good or service if it can produce it at a lower opportunity cost than other countries.
3. Specialization in production and trade based on comparative advantage leads to increased economic efficiency and prosperity for all participating countries, as it allows them to produce and consume a wider variety of goods and services at a lower cost.

The historical reality of trade cooperation

Universal free trade has never existed in practice

Universal free trade, which refers to the complete absence of barriers to trade between countries, has never existed in practice. There have always been some form of trade barriers, such as tariffs, quotas, and non-tariff barriers, that have restricted the flow of goods and services between countries.

However, the idea of universal free trade has been influential in shaping economic policy and international trade agreements. The principles of free trade, which argue that trade between countries should be as unrestricted as possible, have been influential in the development of international trade organizations such as the World Trade Organization (WTO) and regional trade agreements such as the North American Free Trade Agreement (NAFTA). These organizations and agreements aim to reduce trade barriers and promote free and open trade between member countries.

While universal free trade has not been achieved, there has been a trend towards greater openness and liberalization of international trade in recent decades, with an increase in the number of trade agreements and a reduction in trade barriers. However, there are still significant barriers to trade in some areas, and trade disputes and protectionist policies continue to be a source of tension between countries.

Mercantilism was an economic theory that dominated European trade policy from the 16th to the late 18th century. It argued that a country's wealth and power were determined by its supply of gold and silver, and that the best way to increase a country's wealth was to export more goods than it imported, so as to accumulate a surplus of precious metals. Mercantilist policies therefore aimed to restrict imports and encourage exports through the use of tariffs and other trade barriers.

American protectionism in the 19th century was characterized by the use of tariffs to protect domestic industries from foreign competition. The United States imposed high tariffs on imported goods throughout the 19th century, and this protectionist policy was one of the main causes of trade disputes with other countries.

German protectionism in the 19th century was also characterized by the use of tariffs to protect domestic industries. In the aftermath of World War I, Germany adopted a policy of autarky, which aimed to achieve economic self-sufficiency by reducing the country's reliance on foreign trade. This policy was pursued through the use of tariffs, quotas, and other trade barriers.

Free trade has gone into reverse many times

The trend towards free and open international trade has not always been steady and has often been accompanied by periods of protectionism and trade barriers. Throughout history, countries have often adopted protectionist policies in response to economic downturns, political pressures or other external factors.

For example, the Great Depression of the 1930s saw the widespread adoption of protectionist policies as countries sought to protect their domestic industries from foreign competition. The proliferation of tariffs and other trade barriers during this period is often cited as a factor contributing to the severity and duration of the depression.

More recently, countries have reversed their commitment to free trade and adopted more protectionist policies. For example, the US has implemented a number of protectionist measures in recent years, including tariffs on imported steel and aluminium, and tariffs on imports from China.

It is common for the trend towards free and open international trade to ebb and flow as countries respond to changing economic and political conditions. However, the general trend has been towards greater liberalisation and openness of international trade in recent decades.

British trade policy has generally been characterized by a commitment to free trade and openness in international trade. The United Kingdom has traditionally been a strong advocate of free trade and has played a leading role in the development of international trade organizations such as the World Trade Organization (WTO) and regional trade agreements such as the European Union (EU).

However, like other countries, the United Kingdom has also adopted protectionist measures at various points in its history. For example, during the 19th century, the United Kingdom implemented a number of tariffs and other trade barriers to protect domestic industries from foreign competition. More recently, the United Kingdom has implemented tariffs and other trade barriers in response to specific economic or political pressures. Here are a few examples:

1. Brexit: Following the United Kingdom's decision to leave the European Union (EU), the UK has had to negotiate new trade agreements with other countries. In the absence of these agreements, the UK has had to rely on the World Trade Organization's (WTO) Most Favored Nation (MFN) tariff schedule, which imposes tariffs on a range of imported goods.
2. Steel and aluminum tariffs: In 2018, the UK government implemented tariffs on imported steel and aluminum in response to concerns about overcapacity in the global steel industry and the dumping of cheap steel in the UK market.
3. Anti-dumping measures: The UK has also implemented a number of anti-dumping measures in recent years in order to protect domestic industries from unfairly low-priced imports. These measures include tariffs and other trade barriers designed to level the playing field for domestic producers.

During his presidency, President Donald Trump implemented a number of protectionist trade policies that reversed the trend towards free trade and openness in international trade. These policies included tariffs on imported steel and aluminum, tariffs on imported goods from China, and the withdrawal of the United States from the Trans-Pacific Partnership (TPP) trade agreement.

These protectionist measures were justified by the Trump administration as a way to protect domestic industries and workers from foreign competition. However, they were met with criticism from some quarters, as they led to an increase in the cost of imported goods and disrupted supply chains. These measures also led to trade disputes with other countries, and in some cases, retaliatory tariffs on American exports.

Trade liberalisation are very difficult effect

Trade liberalization, which refers to the removal or reduction of barriers to trade between countries, can be a complex and difficult process. There are a number of factors that can make trade liberalization difficult to achieve and implement, including:

1. Domestic politics: Trade liberalization can be politically contentious, as it can lead to changes in the domestic economy and can have impacts on specific industries and groups of workers. This can make it difficult to secure the political support necessary to implement trade liberalization measures.
2. International negotiations: Trade liberalization often requires negotiations with other countries, which can be complex and time-consuming. Reaching agreement on the terms of trade liberalization can be challenging, as countries may have different interests and priorities.
3. Implementation: Once a trade liberalization agreement has been reached, implementing the agreed-upon measures can be difficult, as it may require changes to domestic laws and regulations.

The Corn Laws were a series of tariffs and other trade barriers that regulated the import and export of grain in the United Kingdom between 1815 and 1846. These laws were introduced to protect domestic grain producers from foreign competition and to maintain high food prices for farmers.

The Corn Laws were controversial and were seen as a key example of protectionist trade policy in the 19th century. They were opposed by industrialists and urban workers, who argued that the high food prices caused by the Corn Laws made it more expensive to live and do business in the UK. The repeal of the Corn Laws in 1846 is seen as a key moment in the history of trade liberalization in the UK, as it marked the beginning of a trend towards greater openness and liberalization in international trade.

The repeal of the Corn Laws was a complex and controversial process that took several years to achieve. The Corn Laws were opposed by industrialists and urban workers, who argued that they made it more expensive to live and do business in the UK. However, they were supported by many landowners and farmers, who benefited from the high food prices that the laws helped to maintain.

The repeal of the Corn Laws was a key demand of the Anti-Corn Law League, a political group that was formed in 1838 to campaign for the repeal of the laws. The group argued that the Corn Laws were hindering economic growth and causing hardship for the urban working class. After several years of campaigning and political pressure, the Corn Laws were finally repealed in 1846.

The Doha Round of trade negotiations was a series of talks that were held under the auspices of the World Trade Organization (WTO) with the aim of liberalizing international trade and addressing issues of concern to developing countries. The Doha Round began in 2001 and was initially intended to be completed within a few years. However, the negotiations were ultimately unsuccessful and were suspended in 2008.

There were a number of reasons why the Doha Round was a failure. One of the main reasons was a lack of progress on key issues, such as agriculture and intellectual property. Disagreements between developed and developing countries over these issues made it difficult to reach a consensus on the terms of the agreement.

Another reason for the failure of the Doha Round was the changing global economic and political context. The negotiations took place against the backdrop of the 9/11 attacks, the financial crisis of 2008, and other major events that affected the global economy and the political landscape. These events made it more difficult for countries to agree on the terms of the Doha Round.t

The Doha Round was a failure due to a lack of progress on key issues and the changing global economic and political context. The negotiations were suspended in 2008 and have not been resumed.

Alternative international trade theory (today new trade theory) challenge Riccardian trade theory

Alternative international trade theories are economic theories that challenge or modify the traditional theories of international trade, such as the Ricardian theory of comparative advantage. These alternative theories seek to explain patterns of international trade and the factors that influence trade flows in different ways than the traditional theories.

One example of an alternative international trade theory is the new trade theory, which was developed in the 1970s and 1980s. The new trade theory challenges the traditional assumption that countries should specialize in producing the goods and services in which they have a comparative advantage and import the goods and services in which they have a comparative disadvantage. Instead, the new trade theory argues that countries may choose to produce and export goods and services that they are not necessarily the most efficient at producing if there are significant economies of scale or other benefits to doing so.

Other examples of alternative international trade theories include the Heckscher-Ohlin theory, the factor proportions theory, and the product life-cycle theory. These theories seek to explain patterns of international trade and the factors that influence trade flows in different ways than the traditional theories, and they have been influential in shaping trade policy and research in international economics.

Alternative international trade theories, such as the new trade theory and the Heckscher-Ohlin theory, challenge the assumptions of the Ricardian theory of trade in different ways.

The Ricardian theory of trade is based on the idea of comparative advantage, which states that countries should specialize in producing and exporting the goods and services in which they have a comparative advantage, and import the goods and services in which they have a comparative disadvantage. This specialization allows countries to take advantage of their comparative advantage and increase their overall economic efficiency and prosperity.

However, the new trade theory and the Heckscher-Ohlin theory argue that countries may choose to produce and export goods and services that they are not necessarily the most efficient at producing if there are significant economies of scale or other benefits to doing so. These theories therefore challenge the idea that countries should always specialize in producing the goods and services in which they have a comparative advantage.

Alternative international trade theories challenge the assumptions of the Ricardian theory of trade by offering different explanations for patterns of international trade and the factors that influence trade flows. These theories have been influential in shaping trade policy and research in international economics.

Politics of trade

Liberal model of trade

The political model of international trade derived from Ricardian theory is a conceptual framework that explains how governments make decisions about international trade. This model is based on the ideas of David Ricardo, an influential 19th-century economist who developed a theory of comparative advantage that explains how countries can benefit from specializing in the production of certain goods and services and trading with other countries. According to Ricardian theory, countries can gain from trade by specializing in the production of goods and services in which they have a comparative advantage, which is defined as the ability to produce a good or service at a lower opportunity cost than other countries. This means that a country will be more efficient at producing certain goods and services than other countries, and can therefore produce them at a lower cost. By specializing in the production of these goods and services and trading with other countries, countries can increase their overall efficiency and achieve higher levels of prosperity. The political model of international trade derived from Ricardian theory suggests that governments are motivated to promote international trade because it can benefit their citizens by increasing efficiency and lowering prices.

The political model of international trade derived also from liberal theory assumes that governments act in a way that is intended to promote the welfare of consumers. Liberal theory is a school of thought that emphasizes the importance of individual freedom, limited government intervention in the economy, and the role of markets in allocating resources and producing economic outcomes. In the context of international trade, liberal theory suggests that governments should adopt policies that promote free trade and the free flow of goods and services across international borders. According to this model, governments should remove barriers to trade, such as tariffs and non-tariff barriers, in order to allow consumers to access a wider variety of goods and services at lower prices. The assumption is that by promoting free trade, governments can increase competition in the domestic market and improve the welfare of consumers by providing them with greater choice and lower prices. Therefore, the political model of international trade derived from liberal theory assumes that governments act on the basis of consumer welfare considerations in order to promote free trade and the benefits it can bring to their citizens.

Political model of international trade derived from Ricardian and liberal theory assumes governments act on basis of consumer welfare considerations.

There, both prefer to liberalize, including unilaterally because this allows the import of cheaper goods and services = increases domestic consumer welfare

in game theoretical terms : harmony, both countries prefer liberalisation and their preferences are spontaneously aligned, both liberalise

Mercantilism model of trade

Mercantilism is an economic theory that originated in Europe in the 16th and 17th centuries. It is a form of economic nationalism that holds that a country's wealth is measured by its stockpiles of gold and other precious metals, and that the goal of trade is to accumulate these metals through a positive balance of trade. In other words, mercantilism emphasizes the importance of exports, as they bring in gold and other precious metals, and discourages imports, as they represent a drain on a country's wealth.

Mercantilist countries sought to achieve a positive balance of trade by imposing tariffs and other trade barriers on imported goods, and by providing subsidies and other forms of support to domestic industries. Mercantilism also involved the establishment of colonies, which provided raw materials for domestic industries and served as markets for finished goods.

Mercantilism was a dominant economic theory in Europe during the 16th and 17th centuries, and it had a significant influence on the development of international trade and commerce. However, it has since been largely replaced by more modern economic theories, such as liberalism and neoclassical economics, which emphasize the importance of free trade and the role of market forces in shaping economic activity.

Under the mercantilist system, governments often favored import-competing sectors, as they saw these industries as a way to increase domestic wealth and strengthen the economy. Governments would provide subsidies and other forms of support to these sectors, and they would also impose tariffs and other trade barriers on imported goods in order to make it more difficult for foreign competitors to enter the market. This was seen as a way to protect domestic industries and ensure that they remained competitive in the global market.

However, this focus on import-competing sectors often came at the expense of consumers, who had to pay higher prices for goods due to the tariffs and trade barriers. It also tended to lead to trade disputes and conflicts with other countries, as other governments also sought to protect their own domestic industries through similar measures.

Today, most countries have moved away from the mercantilist model of trade and have embraced more liberal economic policies that focus on free trade and the promotion of competition.

Under the mercantilist system, governments often prioritized the interests of domestic producers over the welfare of consumers. This was because they believed that increasing domestic production and employment was key to building wealth and strength, and that trade was a zero-sum game in which one country's gain was necessarily another country's loss.

In this context, it was thought that protecting domestic industries through tariffs and other trade barriers was necessary in order to maintain competitiveness and prevent foreign producers from taking market share. While this could lead to increased production and employment in the protected industries, it also meant that consumers had to pay higher prices for goods and that they had fewer options to choose from.

Today, most economists agree that free trade and competition benefit both producers and consumers, as they encourage innovation and efficiency and lead to lower prices and a greater variety of goods and services. While governments still have a role to play in promoting the interests of domestic producers, they generally do so in a way that takes into account the overall welfare of the economy and its citizens.

In game theory, mercantilism can be thought of as a strategic behavior in which a country seeks to maximize its wealth and power through its trade relations with other countries. This can involve a variety of tactics, such as imposing tariffs and other trade barriers on imported goods, subsidizing domestic industries, and establishing colonies in order to access raw materials and new markets.

From a game theoretical perspective, mercantilism can be seen as a form of economic nationalism, as it involves a country pursuing its own interests at the expense of other countries. This can lead to conflicts and trade disputes, as other countries may also be trying to protect their own industries and maximize their own wealth and power through trade.

In game theory, there are several different models that can be used to analyze mercantilist behavior, such as the prisoner's dilemma, the stag hunt, and the hawk-dove game. These models can help to explain how countries might interact with each other in a mercantilist system, and how different strategies and tactics might play out in different situations.

Neoliberal institutionalism to promote free trade

Neoliberal institutionalism is an economic and political theory that emphasizes the role of international institutions in promoting free trade and globalization. It is based on the belief that free trade and open markets lead to economic growth and development, and that international institutions can help to facilitate this process by establishing rules and norms that govern trade and investment.

Neoliberal institutionalism as an economic and political theory has its roots in the liberal economic ideas that emerged in Europe in the 19th century and were further developed in the early 20th century. These ideas, which emphasized the importance of free trade and the role of market forces in shaping economic activity, were influential in shaping the international trade negotiations that took place in the mid-1930s and after World War II.

According to neoliberal institutionalism, international institutions such as the World Trade Organization (WTO), the International Monetary Fund (IMF), and the World Bank can play a key role in reducing trade barriers and promoting economic integration. These institutions can help to create a level playing field for all countries, and they can encourage cooperation and collaboration among different nations.

Neoliberal institutionalism also emphasizes the importance of individual countries taking ownership of their own economic development and adopting pro-market policies that encourage competition and entrepreneurship. It is based on the belief that private enterprise is the most efficient and effective way to allocate resources and create wealth, and that governments should adopt policies that support the growth of private enterprise.

It is a free-market approach to economic policy that seeks to promote free trade and globalization through the use of international institutions and pro-market policies.

Neoliberal institutionalism has continued to be a dominant force in international trade negotiations and has played a key role in shaping the global trading system. It has also been influential in shaping the economic policies of many countries around the world, as governments have adopted more liberal economic policies in an effort to promote economic growth and development.

In order to promote neoliberal institutionalism, countries may adopt a number of strategies and requirements, such as:

1. Reducing trade barriers: This may involve lowering tariffs, eliminating quotas, and removing other barriers to trade in order to create a level playing field for all countries.
2. Promoting economic integration: This may involve establishing regional trade agreements or other forms of economic integration in order to facilitate the flow of goods, services, and investment between countries.
3. Encouraging pro-market policies: This may involve adopting policies that support the growth of private enterprise and encourage competition and entrepreneurship.
4. Strengthening international institutions: This may involve supporting the work of international institutions such as the WTO, the IMF, and the World Bank, and participating in negotiations and other activities that promote free trade and economic cooperation.

The implementation of neoliberal institutionalism requires a combination of political commitment, effective legal and regulatory frameworks, robust infrastructure, a skilled workforce, and political stability and security.

There are several requirements that must be met in order to enable the principles of neoliberal institutionalism to be effectively implemented. These include:

1. Political commitment: Governments must be committed to supporting free trade and the role of international institutions in promoting economic growth and development. This may involve adopting pro-market policies and participating in negotiations and other activities that promote economic integration and cooperation.
2. Legal and regulatory frameworks: Countries must have legal and regulatory frameworks in place that support free trade and the operation of international institutions. This may involve enacting laws and regulations that reduce trade barriers and protect the rights of investors and businesses.
3. Infrastructure: Countries must have the necessary infrastructure in place to facilitate the flow of goods, services, and investment between countries. This may include ports, roads, and other transportation infrastructure, as well as telecommunications and other technological infrastructure.
4. Human capital: Countries must have a skilled and educated workforce that is able to take advantage of the opportunities created by free trade and economic integration. This may involve investing in education and training programs to develop the necessary skills and knowledge.
5. Political stability and security: In order for international trade and investment to thrive, countries must provide a stable and secure environment for businesses to operate in. This may involve maintaining political stability and addressing security concerns such as crime and terrorism.

Forums and negotiation rounds play a crucial role in the process of implementing neoliberal institutionalism and promoting free trade. Forums are organizations or platforms that bring together governments, businesses, and other stakeholders to discuss trade and investment issues and to negotiate agreements that can facilitate economic integration and cooperation.

Negotiation rounds are specific periods of time during which these discussions and negotiations take place. They can involve a wide range of stakeholders, including governments, businesses, civil society organizations, and others, and they often result in the creation of new agreements or the modification of existing ones.

In the context of neoliberal institutionalism, forums and negotiation rounds can be used to:

1. Establish rules and norms: Forums and negotiation rounds can be used to establish rules and norms that govern trade and investment, such as tariff schedules and intellectual property protections.
2. Facilitate economic integration: Forums and negotiation rounds can be used to negotiate regional trade agreements and other forms of economic integration that facilitate the flow of goods, services, and investment between countries.
3. Resolve disputes: Forums and negotiation rounds can be used to resolve disputes between countries over trade and investment issues.
4. Promote cooperation and collaboration: Forums and negotiation rounds can be used to bring countries together to discuss common challenges and opportunities and to promote cooperation and collaboration on trade and investment issues.

Neoliberal institutionalism is an economic and political theory that emphasizes the importance of free trade and the role of international institutions in promoting economic growth and development. It is based on the belief that free trade and open markets lead to increased efficiency and prosperity, and that international institutions can help to facilitate this process by establishing rules and norms that govern trade and investment. In order to promote neoliberal institutionalism, countries may adopt a number of strategies and requirements, such as reducing trade barriers, promoting economic integration, encouraging pro-market policies, and strengthening international institutions. The implementation of neoliberal institutionalism requires a combination of political commitment, effective legal and regulatory frameworks, robust infrastructure, a skilled workforce, and political stability and security. Forums and negotiation rounds play a key role in the implementation of neoliberal institutionalism and the promotion of free trade and economic integration, as they can be used to establish rules and norms, facilitate economic integration, resolve disputes, and promote cooperation and collaboration.

GATT / WTO system

History of negotiations

Since the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, there have been a total of nine rounds of trade negotiations. These rounds are as follows:

1. The Geneva Round (1947-1949): The first round of GATT negotiations, which resulted in the creation of the GATT itself and the establishment of rules for international trade.
2. The Annecy Round (1949): A second round of negotiations that focused on reducing tariffs on industrial goods.
3. The Torquay Round (1950-1951): A third round of negotiations that focused on reducing tariffs on agricultural goods.
4. The Geneva Round (1955-1956): A fourth round of negotiations that focused on further reducing tariffs on industrial and agricultural goods.
5. The Dillon Round (1959-1962): A fifth round of negotiations that focused on further reducing tariffs and establishing rules for anti-dumping actions.
6. The Kennedy Round (1964-1967): A sixth round of negotiations that focused on further reducing tariffs and establishing rules for trade in services.
7. The Tokyo Round (1973-1979): A seventh round of negotiations that focused on reducing tariffs and non-tariff barriers, and on establishing rules for trade in agriculture, textiles, and other sectors.
8. The Uruguay Round (1986-1994): An eighth round of negotiations that resulted in the creation of the World Trade Organization (WTO) and the establishment of a comprehensive set of rules for international trade.
9. The Doha Round (2001-ongoing): A ninth round of negotiations that focuses on a variety of issues, including the reduction of trade barriers, the protection of intellectual property, and the promotion of economic development.

There have been nine rounds of trade negotiations under the GATT and the WTO since 1947, with the Doha Round still ongoing. These negotiations have played a significant role in shaping the global trading system and in promoting free trade and economic integration.