Relative effectiveness points Headings Compare, compare, compare Explain why you drew counterfactual lines as you did Use readings, both current and whole course Treaty 2: specific questions BUT also make it a draft Develop ideas so I can help you improve final paper

Overview Lessons about free trade and the environment Effects of free trade depend Consider all, not just selected, consequences of free trade Have MANY theories of how free trade harms or helps environment. Net effect matters. And evidence matters. “Not This NAFTA”: Free trade will happen but need not be completely free

Free Trade and the Environment What is the relationship between these? Discussion

Free Trade is Happening How do we make it less environmentally harmful?

Why free trade is happening:

Per Worker Productivity Cars (units/yr)Oranges (tons/yr) US 4 or1 Mexico 1 or2 This is a hypothetical example!

Per Worker Productivity Cars (units/yr)Oranges (tons/yr) US 4 or1 Mexico 1 or2 Environmental Impact (total for all units produced by one worker) US 2 tons CO2 or1 ton pesticide Mexico 3 tons CO2 or4 tons pesticide This is a hypothetical example!

Closed Economy (protectionism, no trade, 2000 workers in each economy) Cars (units/yr)Oranges (tons/yr) US4,0001,000 Mexico1,0002,000 World5,0003,000 This is a hypothetical example!

Closed Economy (protectionism, no trade, 2000 workers in each economy) Cars (units/yr)Oranges (tons/yr) US4,0001,000 Mexico1,0002,000 World5,0003,000 Environmental Impact (total for all units produced) US2,000 tons CO21,000 ton pesticide Mexico3,000 tons CO24,000 tons pesticide World5,000 tons CO25,000 tons pesticide This is a hypothetical example!

Open Economy (free trade, 2000 workers in each economy) Cars (units/yr)Oranges (tons/yr) US8,000 Mexico4,000 World8,0004,000 This is a hypothetical example!

Open Economy (free trade, 2000 workers in each economy) Cars (units/yr)Oranges (tons/yr) US8,000 Mexico4,000 World8,0004,000 Environmental Impact (total for all units produced) US4,000 tons CO2 Mexico8,000 tons pesticide World4,000 tons CO2 (+ CO2 of 3,000 more cars) 8,000 tons pesticide This is a hypothetical example!

Why Productivity, Not Wages, Matters USMexico Wages$160/day$24/day Days / car25 days250 days Productivity (cost/car) $4000$6000 Wages are FAR lower in Mexico than in the US but still cheaper to build cars in the US because of the lack of mechanization in Mexico. This is a hypothetical example!

Why Productivity, Not Wages, Matters USMexico Wages$160/day$12/day Days / car25 days250 days Productivity (cost/car) $4000$3000 To make it cheaper to build cars in Mexico rather than the US, wages must be SUFFICIENTLY lower in Mexico to offset the lack of mechanization there. This is a hypothetical example!

Other Factors USMexico Labor costs$4000$3000 Parts and materials $5000$5500 Transport$100$1100 Env’l compliance $100$0 Total$9200$9600 This is a hypothetical example!

Free Trade and the Environment Discussion of different causal pathways by which trade influences environmental quality Some are positive, some are negative We can only determine the size of each effect empirically, not theoretically. So, whether NET effect of free trade on the environment is positive or negatives depends on the size and sum of each

Free Trade and the Environment Technique effects: competion  more efficient resource use Scale effects: lower costs  more resource use Income effects: more wealth  demand cleaner envt Composition effects: change in preferences Increased taxes Externalities uncorrected Environmental standards up/down/both Growth generally

What conditions might we impose on Free Trade? Countries involved must have internalized environmental costs and thereby priced resources correctly, otherwise, externalities are exacerbated Sustainable scale of resource use – NOT all economic growth is good

Free Trade and Environment Lessons about free trade and the environment Effects of free trade depend Consider all, not just selected, consequences of free trade Have MANY theories of how free trade harms or helps environment. Net effect matters. And evidence matters. "Not This NAFTA“: Free trade will happen but need not be completely free