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Chapter 17 International Trade: Does It Jeopardize American Jobs?

This chapter explores the effects of international trade on American jobs, discussing what is traded, the benefits and barriers to trade, and the costs of protectionism. It also examines comparative and absolute advantage, the benefits of trade when advantages are the same or different, terms of trade, and reasons for limiting trade. The chapter concludes with an analysis of trade as a diplomatic weapon and the costs involved.

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Chapter 17 International Trade: Does It Jeopardize American Jobs?

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  1. Chapter 17International Trade:Does It Jeopardize American Jobs?

  2. 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

  3. Exports and ImportsAs a percentage of GDP

  4. What We Trade: Exports (2009)

  5. What We Trade: Imports (2009)

  6. With Whom We Trade

  7. Comparative and Absolute Advantage • Absolute Advantage: the ability to produce a good better, faster, or more quickly than a competitor • Comparative Advantage: the ability to produce a good at a lower opportunity cost of the resources used

  8. The Benefits of Trade: When Comparative and Absolute Advantage are the same 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.

  9. The Benefits of Trade: When Comparative and Absolute Advantage are Not the Same 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 and they trade with one another more apples and coffee is available to both countries.

  10. Terms-of-trade • 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.

  11. Using Production Possibilities Frontiers Brazil United States Apples Apples Production Possibilities Frontier Production Possibilities Frontier Coffee Coffee

  12. Consumption Possibilities Frontier with Trade Apples Consumption Possibilities Frontier Coffee

  13. 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

  14. Reasons for Limiting Trade that Most Economists Do Not Support • To protect industries from 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.

  15. 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

  16. World Market P S Pworld F E Pworld D Q’s Q’d Cost of Limiting Trade Domestic Market P S A Pdomestic C B D Q/t Q/t Qd

  17. P S’ S } A Tariff Plimit F P* E C B D Qlimit Q* Q/t Tariffs vs. Quotas Limiting trade with a quota Limiting trade with a tariff A tariff raises tax revenue and a quota does not.

  18. Costs of Protection • Whether there is a quota or a tariff there is deadweight loss. This means that the 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.

  19. Trade as a Diplomatic Weapon • Trade sanctions have failed • To get Castro out of Cuba. • To get Iran to release our hostages in 1979-1980. • To get the Soviet Union out of Afghanistan. • To get Iraq out of Kuwait in 1990.

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