4.1.08 - Demand for scarce factor will fall Owners of...

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Globalization of Trade 4/1/08 The Liberal Case for Free Trade The problems of trade protection o Protection leads to higher prices o Protected industries grow more slowly Why is trade so controversial? Owners of some “factors of production” win from trade, others lose o Factors usually include land, labor, capital o States have a comparative advantage in producing goods that use abundant factors o Owners of scarce factor may earn less under free trade Goods produced using scarce factor imported
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Unformatted text preview: Demand for scarce factor will fall Owners of scarce factor oppose free trade o Political problem: labor may benefit nation, yet harm some within it In labor-scarce countries, organized labor usually opposes free trade Labor is relatively scarce in the US, compared to Mexico AFL-CIO opposes President Clintons efforts to ratify the agreement, in spite of links to democratic party In labor-abundant countries, labor should usually favor free trade...
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