Free trade consists simply in letting people buy and sell as th

							micro
Economics



Unit 12        Free trade consists simply in letting
Slide 1           people buy and sell as they want
                  to buy and sell. Protective tariffs
                  are as much applications of force
                  as are blockading squadrons,
                  and their objective is the same:
                  to prevent trade. The difference
                  between the two is that
                  blockading squadrons are a
                  means whereby nations seek to
                  prevent their enemies from
                  trading; protective tariffs are a
                  means whereby nations attempt
                  to prevent their own people form
                  trading.
                         -Henry George, 1886


Created:
Jan 2007
by Jim Luke.
micro
Economics
               International Trade and Policy
Unit 12

Slide 2


               Comparative Advantage
                 Review and Extensions

               World Production Possibility
                Frontier

               Effects of Trade



Created:
Jan 2007
by Jim Luke.
micro
Economics
               Common Trade Restrictions
Unit 12

Slide 3


               Tariffs – tax on transaction
                   Specific tariffs
                   Ad valorem tariffs
                   Revenue vs. Prohibitive
                    Tariffs
               Quotas
               Loan Subsidies
               Domestic Content Limits
               Unique product/process
                 regulations
Created:
Jan 2007
by Jim Luke.
micro
Economics
               Effects of trade restrictions
Unit 12

Slide 4


               inefficient welfare programs for
                  the domestic producers
               Consumers
                    Suffer & pay
                    Costs spread-out
                    Politically quiet
               Producers
                    Large & focused benefits
                    Political “horse-trading” &
                      lobbying
Created:
Jan 2007
by Jim Luke.
micro
Economics
               Quotas in Practice
Unit 12

Slide 5


               Producers lobby Congress
                 for quotas
                   Reward domestic
                    producers with higher
                    prices
                   Reward foreign
                    producers with the right
                    to sell goods in US
               Lack of opposition from
                 consumers
Created:
Jan 2007           Diffuse benefits
by Jim Luke.
micro
Economics
               Tarriffs vs. Quotas
Unit 12

Slide 6


               Tariff and quotas
                   identical effects on price
                   same change in quantity
                    demanded
               U.S. consumers suffer loss of
                 consumer surplus
               U.S. producers gain
               Who gets the additional
                 revenue?
                   Tariff: government
Created:
                   Quota: producer w/ rights
Jan 2007
by Jim Luke.
micro
Economics
               Other Trade Restrictions
Unit 12

Slide 7


               Export Subsidies
               Low-interest loans
               Domestic Content Limits
               Unique industry/product
                 regulations
                        Health
                        Safety
                        technical standards may
                         discriminate against foreign
                         goods


Created:
Jan 2007
by Jim Luke.
micro
Economics
               Free-trade & Agreements
Unit 12

Slide 8


               Free Trade Zones
                   European Union
                   Bilaterals
               Agreements
                   GATT & WTO
                   NAFTA
                   Paris Convention
                   FTAA
                   CAFTA
Created:
Jan 2007
by Jim Luke.
micro
Economics
               Rhetoric & Trade
Unit 12

Slide 9


               Supporters of Protectionism:
                   Rarely say so
                   “Fair” Trade
                   “Competitiveness”

               Much so-called “Free Trade” isn’t




Created:
Jan 2007
by Jim Luke.
micro
Economics



Unit 12        Arguments “Supporting” Trade
Slide 10
               Restrictions
               National Defense Argument
               Infant Industry Argument
               Antidumping Argument
               Jobs and Income Argument
               Declining Industries Argument




Created:
Jan 2007
by Jim Luke.
micro
Economics



Unit 12        Additional Problems with Trade
Slide 11
               Restrictions
               Often requires protecting
                 downstream stages of
                 production
               Wasted resources seeking
                 favored protections
               Other countries often retaliate,
                   reducing gains from
                    trade
               Costs of enforcment
               Social & Political Risks
Created:
Jan 2007
by Jim Luke.