Survey: Given the current employment problems in this country, should we discourage foreign imports and impose tariffs and quotas in order to stimulate domestic production?

1
Survey Given the current employment problems in
this country, should we discourage foreign
imports and impose tariffs and quotas in order to
stimulate domestic production?

1. Yes
2. No
3. Not sure
4. No opinion/indifferent

Cross-Tab Label
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Unit 10 - International Trade

• Free Trade versus Protectionism
• Free trade is an exchange of products and
• resources without trade barriers, restrictions,
• tariffs, or quotas.
• Protectionism is a government policy to
• discourage trade between countries or areas.

Microeconomics
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Unit 10 - International Trade

• The Law of Absolute Advantages
• A country has an absolute advantage in producing
  a product if it can make it more efficiently (at
  lower cost) than another country.

Microeconomics
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Unit 10 - International Trade

• Absolute Advantage Example
• The following numbers represent hours of
  production needed to manufacture one barrel of
  oil and one watch.

China
Venezuela
Oil
30
10
12
20
Watch
Microeconomics
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Unit 10 - International Trade

• Specialization
• Venezuela produces 100 additional barrels of oil
  (1,000 hours) and decreases watch production by
  50 (1,000 hours).
• China produces 100 additional watches (1,200
  hours) and decreases oil production by 40 (1,200
  hours).

V
C
30
10
Oil
12
20
Watch
Microeconomics
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Unit 10 - International Trade

• Specialization
• Total world production increases by
• Venezuelan oil 100
• Chinese oil - 40
• Additional oil production 60
• Venezuelan watches - 50
• Chinese watches 100
• Additional watches 50

Microeconomics
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Unit 10 - International Trade

• Specialization
• Both countries use the same amount of resources,
  but total world production increases. After
  sharing (trading) the additional goods produced,
  each country is able to increase its standard of
  living.

Microeconomics
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If a country produces both products more
efficiently, then this country should

1. Not trade at all with the other country
2. Produce both products and sell both products to
   the other country
3. Specialize in the product it produces most
   efficiently
4. None of the above

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Unit 10 - International Trade

• The Law of comparative advantages
• A country has a comparative advantage in
  producing a good when it produces a good more
  efficiently relative to the production ratios of
  the same goods produced by another country.

Microeconomics
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Unit 10 - International Trade

• Comparative Advantage Example
• The following numbers represent hours of
  production needed to manufacture one barrel of
  oil and one watch.

China
Venezuela
30
10
Oil
Watch
40
20
Microeconomics
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Unit 10 - International Trade

• Specialization
• Venezuela is more efficient (has the absolute
  advantages) in producing both oil and watches.
• Which country has the comparative advantage in
  producing oil?
• Which country has the comparative advantage in
  producing watches?

Microeconomics
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Unit 10 - International Trade

• Comparative Advantage Example
• Venezuela produces 100 additional barrels of
  oil (1,000 hours) and decreases its watch
  production by 50 (1,000 hours).China produces 60
  additional watches (2,400 hours) and decreases
  its oil production by 80 (2,400 hours).

China
Venezuela
30
10
Oil
Watch
40
20
Microeconomics
13
Unit 10 - International Trade

• Specialization
• Total world production increases by
• Venezuelan oil 100
• Chinese oil - 80
• Additional oil production 20
• Venezuelan watches - 50
• Chinese watches 60
• Additional watches 10

Microeconomics
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Unit 10 - International Trade

• Specialization
• Even in the case where one country is better at
  making all goods, it pays for countries to
  specialize and trade.
• Both countries use the same amount of
  resources, but total world production increases.
  After sharing (trading) the additional goods
  produced, each country is able to increase its
  standard of living.

Microeconomics
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Unit 10 - International Trade

• Arguments against Free Trade
• Common arguments against free trade are
• National security.
• Infant industry.
• Counteracting dumping or foreign subsidies.
• Protecting domestic jobs.
• Improving the trade deficit.

Microeconomics
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Unit 10 - International Trade

• National Security Argument
• We should not import defense-related products
• (weapons, micro chips) because if we become
• enemies with the exporting country, we are
• vulnerable.

Microeconomics
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Unit 10 - International Trade

• Critique of the National Security Argument
• Trading defense related products with stable
  countries serves as a deterrent against
  conflict.We can import the product from a
  variety of countries.
• We can produce many defense related products
  here as well it would not be difficult to
  increase production in case of conflict.

Microeconomics
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Unit 10 - International Trade

• Infant Industry Argument
• New industries are not as cost-effective
  as established industries. We should
  protect domestic industries if they are new.

Microeconomics
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Unit 10 - International Trade

• Critique of the Infant Industry Argument
• Countries often protect their infant
  industries longer than necessary.Once tariffs
  and quotas are in place, they are politically and
  economically difficult to eliminate.Competition,
  not protectionism, is what strengthens
  industries.

Microeconomics
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Unit 10 - International Trade

• Counteracting Dumping and Foreign
  SubsidiesIf foreign countries subsidize their
  manufacturers (farming, steel, etc.), they have
  an advantage. Some foreign manufacturers dump
  (sell at below cost) their products to establish
  a future monopoly situation in the
  market.Tariffs and quotas will offset this
  unfair advantage.

Microeconomics
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Unit 10 - International Trade

• Critique of the Counteracting Dumping and
  Foreign Subsidies ArgumentIf foreign countries
  subsidize their manufacturers, or if companies
  dump their products, it results in lower prices
  for our consumers. This gives us more money to
  purchase products, including domestic
  ones.Monopolies typically dont charge high
  prices. A monopoly will be challenged if the
  price is high. If they do charge high prices,
  they dont last.

Microeconomics
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Unit 10 - International Trade

• Protecting Domestic Jobs Making foreign goods
  moreexpensive through import restrictions,makes
  domestic products relatively more
  attractive.Higher demand for our products will
  lead to more employment.

Microeconomics
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Unit 10 - International Trade

• Critique of the Protecting Domestic Jobs
  ArgumentIf we impose import restrictions to
  protect domestic industries, other countries will
  do the same (retaliation), and our exports will
  decrease.
• Eventually, everyone will lose the advantages of
  free trade.
• Protectionism results in less competition, less
  efficiency, less production, higher prices, lower
  quality products, and less variety of products
  for consumers.

Microeconomics
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Unit 10 - International Trade

• Improving the Trade DeficitIf we reduce our
  imports, then our trade deficit will improve.

Microeconomics
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Unit 10 - International Trade

• Critique of the Improving the Trade Deficit
  ArgumentRestricting imports results in
  decreases in exports (see previous argument), so
  the overall deficit will not improve. Overall
  productivity and wealth will decline because of
  decreasing specialization and competition.

Microeconomics
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Unit 10 - International Trade

• Critique of the Improving the Trade Deficit
  Argument (contd)A trade deficit does not mean
  that a country is in debt. It means that the
  merchandise part of the balance of payments is
  negative the other components are on balance, by
  definition, positive.
• Trade deficits are not necessarily bad they can
  be a sign of a countrys strength.

Microeconomics
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Unit 10 - International Trade

• Less-developed Countries (LDCs)
• Development Aid given to LDCs in 2010 128.7
  billion (30.2 billion by U.S.)
• Africans living on less than 1.25 per day in
  2009 50 (was 58 in 1996)
• Real GDP per capita in sub-Saharan Africa (LDCs)
  in 2009 was less than 700.
• Source Organization for Economic Cooperation and
  Development, World Bank

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Unit 10 - International Trade

• Less-developed Countries (LDCs)
• Characteristics of LDCs include
• Lack of free market policies.
• Improper domestic economic policies.
• Government corruption.
• Poor provision of public services.

Microeconomics
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Unit 10 - International Trade

• Less-developed Countries (LDCs)
• LDCs need structural changes in their
  governments and economies.
• No amount of financial help from
  industrialized countries will significantly help
  their situation if structural changes do not
  take place.

Microeconomics