Isues in economics today 6th by guell chapter17

Chapter Outline• What We Trade And With Whom • The Benefits From Trade • Barriers To Trade • Trade As A Diplomatic Weapon • Kick it Up and Notch: Costs of Protectionism... Comparative a

Chapter 17 International

Trade:

Does It Jeopardize American

Jobs?

Chapter Outline

• What We Trade And With Whom

• The Benefits From Trade

• Barriers To Trade

• Trade As A Diplomatic Weapon

• Kick it Up and Notch: Costs of

Protectionism

Exports and Imports

As a percentage of GDP

What We Trade: Exports

(2009) Good Billions of Dollars of

Exports Elec Mach Aud &

Video

105.0

Transportation

1,780.5

What We Trade: Imports (2009)

Good Billions of Dollars of

Imports

Telecommunication Eq 137.3

Elec Mach Aud & Video 119.7

With Whom We Trade

Comparative and Absolute

Advantage

ability to produce a good better,

faster, or more quickly than a

competitor

ability to produce a good at a

lower opportunity cost of the

resources used

The Benefits of Trade: When

Comparative and Absolute Advantage are the same

Coffee Apples United

Suppose there are two countries, the United States and

Brazil, and two goods, Apples and Coffee, and the

production per unit of labor is shown in the table below.

Clearly, there are benefits from trade If the Americans focus

on apples and the Brazilians focus on coffee and they trade

with one another, more apples and more coffee is available to

both countries.

The Benefits of Trade: When

Comparative and Absolute Advantage are Not the Same

Coffee Apples United

Now suppose the Americans are better at producing both

goods The Americans have an absolute advantage in both

but a comparative advantage in only Apples

There are still benefits from trade If the Americans focus on

apple production and the Brazilians focus on coffee production

• The amount of a good one

country must give up in

order to obtain another good

from the other country,

usually expressed as a ratio.

Using Production Possibilities

Frontiers

Apples Brazil Apples United States

Production Possibilities Frontier

Production Possibilities Frontier

Consumption Possibilities

Frontier with Trade

Apples

Coffee

Consumption Possibilities Frontier

Reasons For Limiting Trade

That Many Economists Support

• National Security

• National Identity

• Both of the above can be

overstated easily.

• Environmental Concerns

• Child-Labor Concerns

Reasons for Limiting Trade that

Most Economists Do Not Support

competition

• To temporarily aid an industry that is

just emerging.

• To protect an industry from

competition that is dumping (the

exporting of goods below cost so as

to drive competitors out-of-business)

its products in the US.

Methods of Limiting Trade

• Tariffs: a tax on imports

• Quotas: a legal restriction

on the amount of a good

coming into the country

• Non-tariff barriers:

barriers to trade that result

from regulatory actions

Cost of Limiting Trade

Q/t

S

D P

Q/t

Domestic Market

Pworld

S

D

Pworld

Pdomestic

Qd

A

B

C

Q’s Q’d

E F

Tariffs vs Quotas

Plimit

C

A

B

E

P

D

S

P*

Limiting trade with a quota

S’

} Tariff F

Limiting trade with a tariff

A tariff raises tax revenue and

a quota does not.

Costs of Protection

• Whether there is a quota or a tariff there

gainers (the people who keep their jobs)

gain less than the losers (the people who have to pay higher prices) lose

• The average cost per job saved via trade

barriers is estimated to be $169,000 per

year.

Trade as a Diplomatic Weapon

hostages in 1979-1980.

Afghanistan.