More Trade cases
3 important questions on More Trade cases
How to reduce trace diversion?
Let other countries joint the EU.. Eventually it will become a world FTA
Case 2. You have an enterprise in Barcelona which produces very expensive ballpoint pens. You export more than 50% of your production to the EU. Croacia became member of the EU in July 2013. Before its entry, your products were not competitive in that country because of the Chinese competition.
Would you benefit from Croacia entry into the EU? Why? What is the name of the economic effect which explains your answer to the first question?
The EU would benefit from the entrance of croatia. Because in the initial situation Croatia would import pens from China because it was cheaper. However after the entrance to the EU, if China wants to export pens to Croatia it must pay tariffs which makes them more expensive. Therefor the entrance of croatia is beneficial for the EU because simply a new market arrived. However the result is that the croatian consumers have to pay more for pens and that now the process is less efficient. This is also called trade diversion
Why should countries not put a high tariff on every products?
-Creation of trade wars
-Not enough variety of products to consume
-Companies are also importers and exporters, so with high tariffs the production will stagger.
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