International Trade Economics

International Trade Economics Name: Institution: International Trade Economics Q1. The terms of trade refer to the ratio existing between a country’s export prices and the import prices. It is important to note that when the prices of the exports recorded by a country increase and supersedes the prices used on the imports, it is said that the terms of trade are moving to a desirable direction; this is because the country is likely to acquire more imports for each unity of the exported goods. One the other side, the terms of trade may be considered to be worsening when a country is required to export more units so as to obtain a specific quantity of the desired imports. Ordinarily, terms of trade are utilized as an indicator of a state’s economic health, but in some situations, it can make analytics to give wrong conclusions. It is necessary to understand that the changes in prices of both imports and exports have an influence on the terms of trade. The terms of trade for New Zealand decreased by 0.3 % in the last quarter of December 2018. This was significantly attributed to the prices of imports going up than the prices of exports. It is important to note that both prices of petrol and diesel when up thus facilitating the increase in import prices. Additionally, during the same period, the export prices of the country’s good reduced by 1.7 % while the import prices went up by 1.4 % (New Zealand Government, 2019). It is necessary to note that the volume of the good exported increased by 0.8% while imports reduced by 0.2 percent. Some of the exports that decreased include dairy and meat prices and volumes and the prices of petroleum and other related products increased while the volumes decreased. In this regard, the terms of trade in New Zealand is likely to improve if the process of petroleum and other related commodities would reduce, such as the prices of exports would supersede the imports. Q2. Ordinarily, large countries have the ability to impose tariff which can help in improving the terms of trade; it is, however, important to note that the extent to which the tariffs may promote positive impact depends on the reciprocal demand existing between the countries. In case two large countries are involved, the other country is likely to retaliate. For example, in this case, when the United States increases the tariffs of solar panels imported from China, there is a high possibility that China would react by imposing tariffs for products imported from the United States. It is important to note that these two countries have had long trade wars and this has deteriorated the international trade relations between the two countries, in different situations, China has retaliated trade tariffs imposed by the United States by imposing billions of dollars of imports from America. It is important to note that countries such as the United States impose tariffs with the goal of protecting domestic employment; this is because the imported commodities have the potential to threaten domestic industries which may be for fire employees as a strategy of cutting down the costs. Also, the tariffs protect infant industries, restricting importation may help in promotes the growth of industries since the rate of competition is relatively lower. T...