GeoFinal Notes-- Trade and Protectionism

GeoFinal Notes-- Trade and Protectionism - Final...

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Final Examination Review Notes Q.  Trade and protectionism 1. Compare the ratification processes of NAFTA and CAFTA.  What does this comparison  tell us about the prospects for further trade agreements involving the United States?   About one-third of the House Democrats joined two-thirds of House Republicans to pass NAFTA.  Since  then, the anti-trade forces in the Democratic party have gotten much stronger.   In 2005, the Central American Free Trade Agreement (CAFTA), whose effects are completely negligible  as far as the U.S. domestic economy is concerned, attracted the support of only 15 House Democrats, where  NAFTA had attracted almost 100.  2. What are the upsides and downsides of a protected labor market?   He claims that globalization leads to economic dislocation as well as to increased productivity.  High levels of innovation, otherwise known as creative destruction, the rendering obsolete of older technologies,  processes and ways of doing business, and their supplanting by newer ones, were not created by globalization but  are the driving engine of capitalism itself; or, possibly more correctly, both capitalism and globalization are both  aspects of the same great historical shift, the supplanting of traditional society by modernity.  But globalization  accelerates creative destruction.  The rate of change induced by competition among firms accelerates when the  competitors are located all over the globe instead of within one country.  For example, compare the rate of  innovation in the automobile industry before 1978, when Detroit had only marginal foreign competition to  contend with, with the rate of innovation from 1979 to the present, with competitors located in Japan, Korea and  Europe.  But the flip side of increased innovation and increased competition is increased dislocation.  To stick  with the example of the automobile industry, compare the rate of dislocation in the earlier period, characterized  by full employment, high and increasing wages and generous health and pension benefits, with the later period,  characterized by layoffs, buyouts and falling volume, and also by calls to keep out the Japanese cars that are  supposed to be causing the problem. 3. Compare tariffs and subsidies in terms of their effects on consumer prices, government  budgets and trade distortion.   Economic interests affected Effect on consumer  prices Effect on government budget Effect on international  market Tariffs Money flows from consumers to producers Prices rise Little direct effect Protected producers are not competitive Internationally Subsidies Money flows from taxpayers to producers Prices fall Government
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