"Running head:INTERNATIONAL TRADE IN NEW ZEALAND International Trade in New Zealand INTERNATIONAL TRADE IN NEW ZEALAND 1Table of ContentsPart A .............................................................................................................................................. 2Q1. ................................................................................................................................................... 2Q2. ................................................................................................................................................... 3Q3 .................................................................................................................................................... 3Q4 .................................................................................................................................................... 4Q5 .................................................................................................................................................... 4Q6. ................................................................................................................................................... 5Q7. ................................................................................................................................................... 6Q8. ................................................................................................................................................... 8Q9. ................................................................................................................................................... 8Part B .............................................................................................................................................. 9Q1. ................................................................................................................................................... 9Works Cited .................................................................................................................................. 11INTERNATIONAL TRADE IN NEW ZEALAND 2Part AQ1.International Trade: Trade means providing goods and services among people inexchange of money. International trade means trade among countries or different geographicalareas (Feenstra, 2015). Countries engage in trade because they gain from it in a big way. Advantages of mercantilism as international trade theoryMany nations have benefitted tremendously from mercantilism theory as a part ofInternational trade. i. It helps a country to enjoy the goods it would not be able to produce due to high costor non-availability of resources.ii. Traders get goods at relatively lesser prices due to mercantilism.iii. It helps in increasing efficiency of countries to produce best quality products.iv. Mercantilism also helps in diversifying the trade culture as the traders brings withthem new ideas and innovations(Velk, Gong, & Zuckerbrot, 2015).Disadvantages of mercantilism as international trade theoryThere are no doubt demerits of Mercantilism in International trade. These are:i. Mercantilism has led to the downfall of colonies due to the production of the goodsnot beneficial to the Home countries.ii. It had expanded the system of slave trade in the colonies of the trading nations.iii. Mercantilism leads to inflation and increase in taxation rates.iv. Sometimes international trade hampers the development of infant industries of thehome country(Feenstra, 2015).v. At times, due to excess exports, there arises a shortage of the product at homecountry. INTERNATIONAL TRADE IN NEW ZEALAND 3Q2.i) Theory of absolute Advantage:According to this theory, it is the ability of a countryto produce a greater quantity of a good than another country with the same available resources(Seretis & Tsaliki, 2016).Theory of comparative Advantage: According to this theory, it is the ability of acountry to produce a product at a lower opportunity cost than its competitors (Laursen, 2015).Even if one country has absolute advantage in all the products, countries can still producedifferent products and exchange through trade.For example, say Country M has an absolute advantage at producing both Coffee and Teathan Country N with the same available resources. But the opportunity cost of producing Coffeein country M is lower than that of Country N. So it is profitable for Country M to Produce Coffeeand import Tea from N in exchange of Coffee.ii)The Trans-Pacific Partnership (TPP)- It is a free trade agreement. It was signed bytwelve countries in February 2017 for trade liberalization and better investment amount themember countries (Velk, Gong, & Zuckerbrot, 2015). The theory of comparative advantagewould enable New Zealand to specialize in the production of the products in which it has loweropportunity cost and since it has got access to significant global markets, it would have widermarkets to export its products. It would also help the country to expand trade relationships.Q3Factor Endowment: It is the availability of resources at the disposal such as land, labor,capital and entrepreneurship, of a country which it can use in the manufacturing of differentgoods and providing different services (Wang, 2014). Countries having huge amount of suchresources tend to be more prosperous, but in order to prosper in true sense, a country needs totake the most out of its factor endowments.In case of New Zealand, It has signed a bilateral trade agreement with China in 2008 andhas also recently signed a free trade agreement with twelve countries, that is, the Trans-PacificPartnership. New Zealand has huge resources at its disposal. Previously the economy wasdependent on tourism and agricultural exports, but after free market reforms, these agreements INTERNATIONAL TRADE IN NEW ZEALAND 4have helped the country to become a business friendly market (Velk, Gong, & Zuckerbrot,2015). The country had factor endowments and with these agreements it is using these resourcesin the best possible ways.Such steps have also helped the country to broaden its market andmaintain trade relations with many countries(Luong, 2014). (Wang, 2014)stated that, just having enormous resources is not enough for a country togrow. Putting those resources at the best possible use is also necessary. New Zealand is all set toutilize its factor endowments in the best way. Q4The various reasons for countries to create trade barriers are as follows:I. Infant Industries: The primary reason for countries to create trade barriers is to protectthe industries by restricting imports.II. Security: Another important reason is to protect certain industries for national security.III. Protection of the consumers: when the country feels certain products are not beneficialto its consumers, it imposes barriers.IV. Employment: It is important for a country to secure the employment of its residents. V. Retaliation: A country may also impose barriers if it feels that the other country hasbroken the trading rules.Q5Non-tariff Barriers: It is a way used by a country to restrict the import or export of aproduct by measures other than imposition of tariffs or taxes. By using such a means a countrycan restrict imports and exports as and when it likes.The four types of non-tariff barriers are:I. Import Licensing Requirements: In this measure countries put limits to the import ofgoods to few particular businesses only (Wang, 2014).II. Voluntary Export Restraints: In this case the exporting countries put limits to theexport of products to specific countries. INTERNATIONAL TRADE IN NEW ZEALAND 5III. Embargoes: This is a measure in which the government restricts the trade of few specificproducts for political and safety purposes.IV. Quotas: In this case countries agree on specific limit to the import of certain products.These can also be given for a particular time period (Luong, 2014).New Zealand has recently opened up to free trade and has signed many trade agreementsto countries around the world. But a few trade barriers need to be undertaken by the country toprotect its industries from the harmful effects of trade (Laursen, 2015). Voluntary ExportRestraints might also useful for the country for restricting export to some specific countries. Thecountry can undertake quota system to restrict import of a few goods so that its industries mayalso be able to produce those goods domestically. Other non-tariff barriers might also be fruitfulto the country so that its market remains protected. With Embargoes measure, the country canrestrict the trade of products needed for defence purposes.Q6.Price based barriers- This type of barrier occurs in the markets where value-basedpricing strategy is used. (Paul, 2015) stated that, in this method, price of product or a service isset according to its demand to the customer, rather than cost of product. International price fixing- According to (Williams, 2013), international price fixing canbe defined as an agreement between companies in a market to buy or sell equivalent products orservices on at a fixed price. It helps to maintain the market condition at fixed supply anddemand. Financial limit- (Paul, 2015) mentioned that the maximum price change a future contractis allowed to undergo on a single trading day. These limits in NZ are mandated by the exchangeto reduce volatility of the market. It is also known as trading limit.Foreign investment control- In order to control investment of foreign companies, manycountries has developed a framework to screen foreign investments that raise public order orsecurity concern (Bagwell, Staiger, & Yurukoglu, 2017). The NZ government has developed asimilar framework to prohibit any foreign investment that fall short of acquisition of control. INTERNATIONAL TRADE IN NEW ZEALAND 6Q7.Import tariff- It can be defined as the tax imposed on a specific imported good orservice (Paul, 2015).It is imposed to control the price of imported products for consumers. Export tariff- A duty imposed on exported products is known as export tariff (Kelsey,2015). It is actually the list of commodities along with the amount of customs duty. Transit tariff- (Bagwell, Staiger, & Yurukoglu, 2017) stated that, transit tariff is the taximposed on goods or commodities passing through a specific custom area while going to anothercountry.Specific duty- It can be defined as the tax rate imposed on an imported good. Accordingto (Bagwell, Staiger, & Yurukoglu, 2017), specific duty is measured in units such as percentageor, cents per Kg. Ad valorem duty- In Latin, it means “according to value” (Williams, 2013). This tax isimposed depending on the value of property or transaction.Compound duty- According to (Bagwell, Staiger, & Yurukoglu, 2017)), compound dutytariff is the combination of specific and ad valorem duties. It is calculated based on both value ofa product and its number, volume or weight. Impact of tariff on prices Higher Tariff rate can increase the price of imported products. Due to this reason,domestic companies do not need to reduce price to deal with increased competition (Williams,2013). As a result, the end consumers have to pay higher price for a product. Two diagramsprovided below. The diagram 1 indicates the impact of world trade without tariff. The secondone indicates impact of tariff on price and volume of import.Supply demand diagram INTERNATIONAL TRADE IN NEW ZEALAND 7Diagram 1: Price of product without tariffSource:(Yu, 2015)Here,DD= Domestic demand DS= Domestic supplyP= Price of good in a country P* = International priceFrom the graph it is clear that customers can purchase Q worth products at lower price.w However, the county can only produce Q . Hence, the country has to import Q -Q .d w d"