1. Chapter 17 International 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 Imports As a percentage of GDP

4. What We Trade: Exports (2009)
Good
Billions of Dollars of Exports
Elec. Mach. Aud & Video
105.0
Motor Vehicles
95.0
Transportation Equipment
84.0
Petroleum
62.7
Industrial Mach.
56.5
Services
503.0
1,780.5

5. What We Trade: Imports (2009)
Good
Billions of Dollars of Imports
Petroleum
329.6
Motor Vehicles
179.1
Telecommunication Eq
137.3
Elec. Mach. Aud & Video
119.7
Office Machines
113.5
Services
370.0
Total
2,282.1

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.
Coffee
Apples
United States 1 2
Brazil
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.
Coffee
Apples
United States 3 2
Brazil 1
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. Cost of Limiting Trade Pworld S D P World Market Domestic Market P S A
Pdomestic C
Q’s
Q’d E F B D
Q/t
Q/t Qd

17. } Tariffs vs. Quotas P Limiting trade with a quota
Q/t D S P* Q* S’ }
Tariff F
Plimit C A B
Limiting trade with a quota
Qlimit
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
To get the Soviet Union out of Afghanistan.
To get Iraq out of Kuwait in 1990.