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1. Determine whether a country imports or exports a good.

2. Identify who wins and who loses from international trade.

3. Graph and describe the welfare effects of tariffs.

4. List and describe arguments people use to advocate trade restrictions.

5. Describe the debate surrounding international trade.

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ESI Unit 5 Lesson 2 - International Trade Flashcards | Quizlet

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Start studying ESI Unit 5 Lesson 2 - International Trade. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

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From Lerch: I have used this Choices curriculum several times; it is perfect if you have time; ask me about it if you have questions.

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What should be the priorities of U.S. trade policy?

Second edition. February 2017.

International Trade in a Globalized World seeks to help students understand the basics of international trade and consider its role in this era of globalization. Today, the uncertainty of the global economy makes questions about trade policy especially important. What economic policy choices will strengthen the national and global economies? What values, beliefs, and interests should form the bases for these economic policy choices?

Readings

The readings prepare students to consider the policy choices facing the United States and introduce them to the terms and concepts essential to a basic understanding of international trade. Part I examines the history of the current economic system and the changes brought about by globalization. Part II considers the effects of these changes-and U.S. trade policy-on people in the United States and around the world.

Charting International Trade

Students record and map the countries of origin of clothing products in the classroom to demonstrate the impacts of trade.

Why Countries Trade

Playing different imaginary countries, students trade bread and cell phones in a highly structured simulation. Students consider the incentives for trade and explore the concept of comparative advantage.

Evaluating the Impact of Economic Change

Students identify sources of opportunity and anxiety associated with economic globalization by understanding diverse perspectives of characters from different countries and social groups.

Analyzing Trade Statistics

Working collaboratively to evaluate statistical data, students consider the causes and effects of trends in global manufacturing trade since 1948.

The Options Role Play

Working cooperatively, students explore four different options for U.S. trade policy in a role-play activity.

Opposing Views on International Trade

Students deliberate with classmates and articulate coherent recommendations for U.S. trade policy based on personally held values and historical understanding. They then consider speeches on trade by Presidents Donald Trump and Barack Obama.

Additional reference material for added context and support.

Bhagwati, Jagdish. In Defense of Globalization. Oxford: Oxford University Press, 2007.

Chang, Ha-Joon. Economics: The User's Guide. New York: Bloomsbury Press, 2014.

Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. 1st updated and expanded ed. New York: Farrar, Straus and Giroux, 2006.

Milanovic, Branko. Global Inequality: A New Approach for the Age of Globalization. Cambridge, Massachusetts: The Belknap Press of Harvard University Press, 2016.

Stiglitz, Joseph E. The Price of Inequality: How Today's Divided Society Endangers Our Future. New York: W.W. Norton & Co., 2012.

Full version of Donald Trump's Presidential Campaign Speech in Monessen, Pennsylvania, June 28, 2016. For use with the lesson "Opposing Views on U.S. Trade Policy."

Full version of Barack Obama's remarks at Hannover Messe Trade Show in Hannover, Germany, April 24, 2016. For use with the lesson "Opposing Views on U.S. Trade Policy."

Provides information on current and past disputes, statistics, and goals of the organization.

Outlines U.S. interests in global trade and provides statistics and general information.

Policy and data oriented blog that focuses on economic growth and equity.

Provides information about development and how it connects to global trade and economics.

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International Trade in a Globalized World - The Choices Program

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International Trade in a Globalized World helps students explore the controversies surrounding international trade. Students consider the issues that affect trade including globalization in the United States and abroad.

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Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports.

Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally support free trade. However, these gains may not be equally distributed. Also, though there is a net gain in economic welfare - there can be groups of individuals who lose out (e.g. uncompetitive firms who close down. There are winners and losers from free trade.

Winners from free trade

Exporters. The removal of tariff barriers will enable competitive firms to export more. This will create jobs in the export sector and increased production for these exporting firms. Firms can specialise in niche production and export around the world. This increased specialisation can enable economies of scale as the firm can produce for a global market rather than just domestically. New trade theory, states these economies of scale are one of most significant aspects of free trade.

Consumers benefit from lower prices. Free trade reduces the price of imported goods. This enables consumers to enjoy increased living standards. After the purchase of imports, they have more left over income to spend on other goods. Free trade can also lead to increased competition. Domestic monopolies now face increased competition from abroad. This competitive pressure can reduce prices for consumers further.

Domestic firms. If consumers benefit from lower prices, then they have increased spending power. Although not particularly obvious and visible, indirectly other domestic firms will see increased demand from lower tariffs and the higher disposable income of domestic consumers.

Increased economic growth and tax revenue. Trade liberalisation can have benefits for economic growth, which will lead to increased tax revenue and increased funds for spending on public services.

Losers from free trade

Uncompetitive domestic firms. Tariffs are often designed to protect domestic firms which produce at a higher cost than international competitors. With free trade, they will see a fall in demand and could go out of business.

Workers in these uncompetitive industries could lose jobs. If free trade leads to a sharp shift in domestic demand, old exporting industries may close down, leading to jobs losses.

Negative regional multiplier effects. Free trade may affect particular industries concentrated in particular regions. If a region suffers job losses and lower production, then there will be a negative regional multiplier effect which will cause higher regional and structural unemployment. Though net economic welfare for the whole country may increase, some regions which relied on old exporting industries can struggle to adapt to new economic demand. This can be seen in areas like the US 'Rust belt' and parts of the UK which experienced a rapid industrial decline.

Potential environmental costs. New trade deals like TIPP venture into more areas than just tariff reduction. They include laws which enable firms to sue governments for loss of profit from regulation and can ignore social costs and benefits. For example, Europe has subsidies for renewable energy. However, free trade deals could put fossil fuels on a level playing field to renewable energy; this ignores external costs and benefits. Free trade can have environmental costs.

Evaluation

A big issue is the visibility of losers and winners. If you work for an exporting industry which is threatened by free trade, you will be quite vocal in opposing free trade or at least seeing the potential cost.

However, domestic firms which benefit from a marginal increase in spending related to lower tariffs may not even make the connection.

Even for consumers, lower prices from free trade are not that visible. If there was a banana war and prices increased 20%, it is not a major economic cost - many consumers would not even notice. But, if you know someone who loses a job in an old uncompetitive export industry - this is very visible.

If a large steel firm closes down because it is international uncompetitive, then the 500 job losses could make national news. In the long-term, new kinds of jobs will be created, but these new jobs will not make national news. They are less visible.

Free trade can be blamed when over factors are at work. Even without free trade, different sectors of the economy will rise and fall. There used to be a time when 90% of the population worked on farms. We can say these low-paid farmworkers lost their jobs, but is that a bad thing? Similarly, the UK used to have 1 million coal miners, but improved technology means we can generate power with fewer workers. It is true we import cheaper coal from Argentina, but also, we can generate more power from renewable sources

Related
Why is free trade more popular amongst economists than general public?

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Who are the winners and losers from free trade? - Economics Help

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Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally support free trade.

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D24_Effect of Tariff in Competitive Market.pdf

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D24s_Effect of Tariff in Competitive Market - solution.pdf

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Comparative Advantage and Trade In A Global Economy.pdf

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By Ana Maria Santacreu, Economist, and Heting Zhu, Senior Research Associate

Productivity differences across countries and industries determine patterns of international trade-hence, comparative advantage. What are the main drivers of these productivity differences? We provided an answer in our article " Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage."

Production and Exports

First, we found that countries tend to export more-hence, have comparative advantage-in those industries in which they are more productive. Moreover, exports of a country increase faster in those industries that experienced larger productivity growth.

Therefore, to understand sources of comparative advantage, we need to further explore the drivers of productivity growth at the country-industry level. Unfortunately, data on country-industry productivity are limited to very few countries.

In our article, we used trade and production data to compute a measure of industry productivity. We found the following patterns:

There was a large dispersion in relative productivity at the country and industry level.

The U.S. appeared to be, albeit with a few exceptions, the country with the largest level of technology across all industries. Hence, we treated it as the technology frontier.

Productivity at the country and industry level grew over time.

Not all countries and industries were converging to the technology frontier with the same intensity.

Innovation and International Technology Diffusion
Second, we posited that innovation and international technology diffusion are the main drivers of differences in productivity across countries and industries. We explored this hypothesis quantitatively and found that both domestic innovation and technology adoption had a positive and significant effect on productivity growth.

The effect of domestic innovation on productivity growth was less in lower-income countries than in higher-income countries. In particular, a 1 percent increase in the log of research and development spending implied an increase in productivity growth of 0.21 percent in lower-income countries and of 0.49 percent in higher-income countries.

Furthermore, the relative importance of innovation with respect to technology adoption was larger in higher-income countries than in lower-income countries.

Key Sources of Comparative Advantage

Overall, our results indicate that domestic innovation and international technology diffusion are key determinants of country-industry productivity and, hence, sources of comparative advantage. Understanding the sources of comparative advantage in a country is important in analyzing welfare gains from trade liberalizations.

Notes and References

¹ Santacreu, Ana Maria; and Zhu, Heting. " Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage." Federal Reserve Bank of St. Louis Review, May 30, 2018.

Additional Resources

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What Drives Productivity Differences across Countries?

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By Ana Maria Santacreu, Economist, and Heting Zhu, Senior Research Associate Productivity differences across countries and industries determine patterns of international trade-hence, comparative advantage. What are the main drivers of these productivity differences? We provided an answer in our article " Domestic Innovation and International Technology Diffusion as Sources of Comparative Advantage."