1. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

2. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 5 Who Gains and Who Loses from Trade?

3. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.1 – How Free Trade Affects Income Distribution in the Long Run: The Whole Chain of Influence

4. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.2 – Winners and Losers: Short Run Versus Long Run

5. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. The Factor Ratio Paradox

6. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. International Factor Price Equalization  With the shift to free trade: For each factor, its rate of return becomes more similar between countries. Under ideal conditions, its real rate of return is the same in different countries.  Example: Labor.  With no trade, the wage rate is high in the labor- scarce country. The wage rate is low in the labor- abundant country.  With free trade, the import of labor-intensive products pushes the wage-rate down in the labor- scarce country. The export of labor-intensive products pulls the wage rate up in the labor- abundant country.

7. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.3 - Shares of the World’s Factor Endowments, Early 2000s

8. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.4 – U.S. International Trade in Selected Products, 2004

9. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. China’s International Trade in Selected Products, 2003

10. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. China: Value of Exports and Value of Imports, 1976-2003

11. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.5 – A Schematic View of the Factor Content of U.S. Exports and Competing Imports

12. McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.6 - The Factor Content of Canada’s Exports and Competing Imports