ECON231 Lecture Notes - Lecture 9: Chinese Clothing, Uruguay Round, Trade War

14 views3 pages

blackgoose62

19 Apr 2018

School

University of Waterloo

Department

Economics

Course

ECON231

Professor

Jean Forand

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Chapter 10 the political economy of trade policy. Case 3: free trade provides competition & opportunities for innovation (dynamic benefits: providing entrepreneurs with incentive to seek new ways to export & compete, free trade offers more opportunities for learning & innovation. Case 4: free trade avoids the loss of resources through rent seeking spend time on other resources seeking quota right & the profit that they will earn. Case 3: counter argument an import tariff/export tax could improve national welfare at the expense of other countries: this argument ignores the likelihood that other countries may retaliate against large countries by enacting their own trade restrictions. Case 5: theory of second best government intervention that distorts market incentives in one market may increase national welfare by offsetting the consequences of market failures elsewhere. If best policy, fixing the market failures is not feasible, then government intervention in another market may be the second best way of fixing the problem.

Related Questions

Question 6: Which of the following economic goals focuses on equal opportunities for education? (5 points)

-Equity

-Freedom

-Growth

-Security

Question 7: Marcel takes out student loans and works part-time to put himself through college. In time, he earns an advanced medical degree and goes to work in an understaffed city -hospital. Marcel's economic decisions benefit the goal of efficiency by (5 points)

-making his own job

-related decisions

-paying back loans to reduce the debt

-contributing to the nation's productivity

-taking advantage of equal opportunities

Question 8: Two countries produce milk and dairy products efficiently. Neither has an absolute advantage. However, Country A exports milk to Country B, and Country A imports cotton from Country B. Which of the following is inferred? (5 points)

-The opportunity cost of producing milk is lower for Country A.

-The opportunity cost of producing cotton is higher for Country B.

-Country A has a natural resource advantage in cotton.

-Country B has a natural resource advantage in milk.

Question 9: Worker hours to produce one unit of natural gas; Worker hours to produce one unit of oil; Brazil 4 9; Argentina 2 10; Mexico 3 7; United States 1 6. According to the chart, which country has the comparative advantage in oil production? (5 points)

-Brazil

-Mexico

-Argentina

-United States

Question 10: The United States can manufacture books at a much more rapid pace than manufacturers in Indonesia. Which of the following is a reason? (5 points)

-Indonesia, as a developed country, has a highly paid and experienced workforce

-Indonesia, as a developing country, has a less advanced manufacturing infrastructure

-The United States, as a developing country, has a high comparative advantage in manufacturing.

-The United States, as a developed country, has a lower cost of living than Indonesia

Question 11: A group of nations establishes a free-trade zone. What is the most likely effect? (5 points)

-Cost of trade increases

-Exports decrease

-Imports decrease

-Trade increases

Question 12: The United States may have a tariff on cotton products from China in order to (5 points)

-prevent Chinese manufacturers from losing profit because of low prices

-protect the business of the American cotton growers and manufacturers

-stop trade due to political disagreement on economic policy

-promote sales in the United States of cotton products from China

Question 13: A Chinese international salesperson hoping to increase exports to the U.S. may worry about the inflation of the U.S. dollar because the inflation may (5 points)

-increase the United States' supply of Chinese products

-decrease tariffs on Chinese products sold to the United States

-increase taxes on the United States' products sold to China

-reduce the United States' demand for Chinese products

Question 14: How would a strong U.S. dollar impact the trade of grain produced in the United States? (5 points)

-U.S. grain exports decrease

-U.S. grain exports increase

-U.S. grain imports decrease

-U.S. grain imports stagnate

Question 15: Which of these can be a result of inflation? (5 points)

-Businesses grow cautious about spending

-The government has to cut spending

-The price of household items increases

-Workers benefit from a lower cost of living

Question 16: If the inflation rate increases faster than their income, people will most likely (5 points)

-use a higher proportion of their incomes on basic needs

-spend a lower proportion of their incomes on basic needs

-get more goods and services for less money

-obtain fewer goods and services for less money

Question 17: To increase your standard of living, your wages must (5 points)

-rise faster than the inflation rate

-rise more slowly than the inflation rate

-keep pace with the inflation rate

-have a negative inflation rate

Question 18: Look at the map showing the European Union (EU) and its free-trade agreement (FTA) countries. Which is true about most current EU free-trade agreements? (5 points)

-The European Union's free-trade agreements are with all of the most developed nations in the world.

-The European Union's free-trade agreements include agreements with both developed and developing nations.

-The European Union's free-trade agreements focus on nations with access to overland trade routes

-The European Union's free-trade agreements focus on the Southern Hemisphere, as distant countries have access to goods not grown in Europe.

peachyellowjacket690

Too Late to Compensate Free Tradeâs Losers

CAMBRIDGE â It appears that a new consensus has taken hold these days among the worldâs business and policy elites about how to address the antiÂglobalization backlash that populists such as Donald Trump have so ably exploited. Gone are the confident assertions that globalization benefits everyone: we must, the elites now concede, accept that globalization produces both winners and losers. But the correct response is not to halt or reverse globalization; it is to ensure that the losers are compensated.

The new consensus is stated succinctly by Nouriel Roubini: the backlash against globalization âcan be contained and managed through policies that compensate workers for its collateral damage and costs,â he argues. âOnly by enacting such policies will globalizationâs losers begin to think that they may eventually join the ranks of its winners.â

This argument seems to make eminent sense, both economically and politically. Economists have long known that trade liberalization causes income redistribution

and absolute losses for some groups, even as it enlarges a countryâs overall economic pie. Therefore, trade deals unambiguously enhance national wellbeing only to the extent that winners compensate losers. Compensation also ensures support for trade openness from broader constituencies and should be good politics.

Prior to the welfare state, the tension between openness and redistribution was resolved either by largeÂscale emigration of workers or by reÂimposing trade protection, especially in agriculture. With the rise of the welfare state, the constraint became less binding, allowing for more trade liberalization. Today the advanced countries that are the most exposed to the international economy are also those where safety nets and social insurance programs â welfare states â are the most extensive. Research in Europe has shown that losers from globalization within countries tend to favor more active social programs and laborÂmarket interventions.

If opposition to trade has not become politically salient in Europe today, it is partly because such social protections remain strong there, despite having weakened in recent years. It is not an exaggeration to say that the welfare state and the open economy have been flip sides of the same coin during much of the twentieth century.

Compared to most European countries, the United States was a latecomer to globalization. Until recently, its large domestic market and relative geographical insulation provided considerable protection from imports, especially from lowÂwage countries. It also traditionally had a weak welfare state.

When the US began opening itself up to imports from Mexico, China, and other developing countries in the 1980s, one might have expected it to go the European route. Instead, under the sway of Reaganite and marketÂfundamentalist ideas, the US went in an opposite direction. As Larry Mishel, president of the Economic Policy Institute, puts it, âignoring the losers was deliberate.â In 1981, the âtrade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments.â

The damage continued under subsequent, Democratic administrations. In Mishelâs words, âif freeÂtraders had actually cared about the working class, they could have supported a full range of policies to support robust wage growth: full employment,

collective bargaining, high labor standards, a robust minimum wage, and so on.â And all of this could have been done âbefore administering âshocksâ by expanding trade with lowÂwage countries.â

Could the US now reverse course, and follow the newly emergent conventional wisdom? Back in 2007, political scientist Ken Scheve and economist Matt Slaughter called for âa New Deal for globalizationâ in the US, one that would link âengagement with the world economy to a substantial redistribution of income.â In the US, they argued, this would mean adopting a much more progressive federal tax system.

Slaughter had served in a Republican administration, under President George W. Bush. It is an indication of how polarized the US political climate has become that it is impossible to imagine similar proposals coming out of Republican circles these days. The effort by Trump and his Congressional allies to emasculate former President Barack Obamaâs signature healthÂinsurance program reflected Republicansâ commitment to scaling back, not expanding, social protections.

Todayâs consensus concerning the need to compensate globalizationâs losers presumes that the winners are motivated by enlightened selfÂinterest â that they believe buyÂin from the losers is essential to maintain economic openness. Trumpâs presidency has revealed an alternative perspective: globalization, at least as currently construed, tilts the balance of political power toward those with the skills and assets to benefit from openness, undermining whatever organized influence the losers might have had in the first place. Inchoate discontent about globalization, Trump has shown, can easily be channeled to serve an altogether different agenda, more in line with elitesâ interests.

The politics of compensation is always subject to a problem that economists call âtime inconsistency.â Before a new policy â say, a trade agreement â is adopted, beneficiaries have an incentive to promise compensation. Once the policy is in place, they have little interest in following through, either because reversal is costly all around or because the underlying balance of power shifts toward them.

The time for compensation has come and gone. Even if compensation was a viable approach two decades ago, it no longer serves as a practical response to

globalizationâs adverse effects. To bring the losers along, we will need to consider changing the rules of globalization itself.

QUESTIONS:

a. According to Rodrik, why is it that "trade deals unambiguously enhance national wellbeing only to the extend that winners compensate losers?" Explain completely.

b. Rodrik draws a historical link between globalization and the "welfare state." Explain this link.

c. Rodrik mentions a previous proposal by Scheve and Slaughter called "A New Deal for Globalization." What was the essence of this proposal? What has become of it?

d. What is the "time inconsistency" problem and why is it relevant for Rodrik's argument?

e. In your opinion, what is one weakness in Rodrik's argument? Explain.

maroonporpoise564

6. Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. The opportunity cost of producing 1 orange for Alpha and Beta, respectively, are:

A. 0.25 apples; 0.5 apples.

B. 9 apples; 4 apples.

C. 0.5 apples; 0.25 apples.

D. 2 apples; 4 apples

10. The infant industry argument for protectionism suggests that an industry must be protected in the early stages of its development so that:

A. firms will be protected from subsidized foreign competition.

B. domestic producers can attain the economies of scale to allow them to compete in world markets.

C. there will be adequate supplies of crucial resources in case they are needed for national defence.

D. it will not be subjected to a takeover from a foreign competitor.

13. The race to the bottom scenario of global environmental degradation is explained roughly like this:

A. Companies seek to reduce their costs of operations on plant and equipment design and this results in higher levels of pollution.

B. Companies seek the lowest market prices on products in order to gain market share, resulting in inferior goods and increased waste and pollution.

C. Profit-seeking multinational companies shift their production from countries with strong environmental standards to countries with weak standards, thus reducing their costs and increasing their profits.

D. Companies seek to influence environmental legislation standards are set to the lowest possible standards in the USA in order to maximize profits.

17. If 112 Japanese yen purchased $1.00 U.S. in 2008 and 83 Japanese yen purchased $1.00 U.S. in 2009, then

A. the dollar depreciated against the yen

B. the dollar appreciated against the yen

C. the yen depreciated against the dollar

D. the yen weakened against the dollar

ECON231 Lecture Notes - Lecture 9: Chinese Clothing, Uruguay Round, Trade War

Document Summary

Get access

Related Documents

ECON231 Lecture Notes - Lecture 3: General Agreement On Tariffs And Trade, World Trade Organization, Trade War

ECON 3601 Lecture Notes - Lecture 9: North American Free Trade Agreement, Median Voter Theorem, Economic Surplus

ECO 2121 Lecture 7: Lecture 7 – Chapter 10

Related Questions