Econ+102+lecture+24%2C+4-10-12+-+Trade+policy copy

Econ+102+lecture+24%2C+4-10-12+-+Trade+policy copy -...

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Lecture 24: Trade policy, and measuring  trade flows Econ 102, Winter 2012 4/10/2012 1 Required reading : Ch 5: pp. 137 – 142 Driskill (on CTools): 1-7, 12-15, and 18-21 Ch. 18: pp. 493 – 504
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Outline 1. Why restrict trade? a. “Political economy” arguments b. Moral arguments c. “Interconnected markets” arguments 2. Measuring trade flows 4/10/2012 2
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Why restrict trade? The economic argument for trade is generally taken to be a “slam-dunk” If there is a single issue upon which economists have a consensus, it is the issue of free trade Over 90% believe we should abolish all barriers to international trade And yet, throughout history trade restrictions have largely been the rule, rather than the exception Recall the Mercantilists: trade as “zero sum” Mercantilism says we should tax import-competing industries What arguments might one put forth to argue in favor of 4/10/2012 3
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Why restrict trade?  Political economy We know that tariffs in import-competing markets are consumer-hurting What justifications are usually given to pass typically consumer-harming trade restrictions? 1. National Security Some industries are too important (military goods) or expose us too much to foreign influence (oil?) to rely on trade 2. Job Creation Trade will cause some jobs to be lost in the import-competing sector, causing unemployment, pain, and uncertainty for these workers 4/10/2012 4
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Why restrict trade?  Political economy Of course, politicians generally won’t pass consumer- hurting laws just because producers asked them nicely. What justifications are usually given for trade restriction? 3. Infant Industry A country wants to develop a new industry . While learning, competing with the international market would be destructive, so protect. Manufacturing in Latin America in the 50s, aerospace (Airbus) in Europe in the 60s. 4. Anti-Dumping Dumping : selling a good below cost of production in order to run foreign competition out of business 4/10/2012 5
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Why restrict trade?  Political economy Even as the economic argument says consumers are the ones who benefit from imports, many individuals oppose them. Why? The Heckscher-Olin theorem says US will specialize (increase wages) in products that take high-skill labor. Already high-paying jobs pay more! Inequality- enhancing Sending low-skilled jobs abroad is seen by some as giving our “worst” jobs to developing countries This, even as this tends to raise wages of the poor in poor countries: Krugman calls it the “sweatshop fallacy If we want to “protect” or “create” jobs in a given 4/10/2012 6
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Why restrict trade?  Moral arguments The Driskill reading (“Deconstructing free trade”) takes the textbook Ricardian model on its own terms and asks: what is there to critique?
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