Reid McWilliams David Ricardo

DAY 1 (Prep for Video)  International Trade  ISI vs. EOI  Arguments for Free Trade  Arguments against it  Subsidies  Current Negotiations DAY 2  Free Trade Video

 The exchange of goods and services between nations CIA World Factbook

 50% of World trade  Developed Developed  35% of World trade  Developed Developing  15% of World trade:  Developing Developing

 Developed Countries  Technology (High tech goods) ▪ Airplanes and computers  Developing Countries  Basic Textiles and Food ▪ Cloth, Rice, Wheat, etc.

 ISI – a policy aimed to attempt to reduce its foreign dependency through the local production of industrialized products.  EOI – aims to speed up the industrialization process of a country through exporting goods in which the given nation has a comparative advantage.  Anyone?  The ability of a country to produce a particular good or service at a lower opportunity cost than another country  Which one demonstrates free trade principles?  What are some advantages and disadvantages to each of these policies?

 Advantages  Tariffs on imported goods (usually high)  Helps domestic companies  Disadvantages  Decreased competition  Growth Rate slower than EOI ▪ (The Life You Can Save)  Reliant on government to retain its policies

 Advantages  Allows specialization in products YOU are good at because of location, population, etc.  Strong export base allows for global competition and eventually, ▪ diversification of economy. ▪ GDP growth  Disadvantages  Reliant on demand for their specialty

 Comparative Advantage  Countries help each other out.  But, it is also about productivity ▪ Who can produce the most amount of one good without sacrificing too much of the other good?  Heckscher and Olin Trade Theory ▪ Simplified: Countries have comparative advantages in goods for which the required factors of production are abundant locally. ▪ Therefore, developing countries will have a comparative advantage in unskilled, labor-intensive products.

 Economies of Scale  The increase in efficiency of production as the number of goods being produced increases.  Particularly used between developed countries to determine comparative advantage.  Product Differentiation  Another way to determine comparative advantage between developed countries.  Apple or Windows? All helps to lower overall retail price.

 Income Inequality  more export opportunities would raise wages of those primarily producing export goods while increased competition from imports would tend to decrease wages of workers producing substitutable goods domestically.  Increased Unemployment  Low-skilled / Labor-intensive jobs can be exported abroad where employees can be paid less.

 Free Trade Agreement between Canada, the United States, and Mexico  Controversial – Americans worried that low-skilled jobs would be exported to Mexico  U.S. – Korea Free Trade Agreement  Let Korea have our beef and cars.

   agreements/ agreements/16253      s.com/article/idUSTRE56L1B world+exports+total+2009&cd=8&hl=en&ct= clnk&gl=us s.com/article/idUSTRE56L1B world+exports+total+2009&cd=8&hl=en&ct= clnk&gl=us      df df  korea%20free%20trade%20agreement&st=cse korea%20free%20trade%20agreement&st=cse   

 Global Economics - Global Exchange: Free Trade & Protection Video  Wcs0 Wcs0