It is also hurting american consumers simply put if

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ican consumers. Simply put, if the United States retaliates against other countries for the tariffs they have imposed, American consumers get hurt in the crossfire. Consider what happens if Japan dumps some goods in the United States (sells at a price below cost). That action might hurt U.S. producers (that compete with Japan), but it helps U.S. consumers because they are the ones who pay the low prices. So dumping is not really like getting a slap in our collective face. It is a slap in the face to our producers, but it is a pat on the back as far as our consumers go. What we are trying to point out is that this whole issue of international trade and trade restrictions is not quite as black-and-white as it might first appear. Suppose Kelly is a domestic producer of good X. Currently, the United States imposes a high tariff on good X if it is produced in any foreign country. Kelly benefits from the tariff because the tariff simply makes any foreign-produced good X less EXAMPLE: 15 (390-427) EMC Chap 15 11/18/05 9:13 AM Page 413 competitive with the good X that Kelly produces. Now suppose one day that a study shows that American consumers are annually paying an extra $400,000 to increase Kelly’s profits from $10 a year to $100,000 a year. This news is broadcast all over the television and radio news, and finally the Congress of the United States decides to consider eliminating the tariffs on good X. Kelly may know that the country, as a whole, benefits more from eliminating the tariff than keeping it, but Kelly certainly doesn’t benefit more. Kelly may lobby to keep the tariff, even though more Americans are hurt by it than are helped by it. International Economic Integration One of the hallmarks of a global economy is economic integration, the combining of nations to form either a common market or a free trade area. In a common market, the member nations trade without restrictions, and all share the same trade barriers with the outside world. For example, suppose countries A, B, C, D, E, and F formed a common market. They would eliminate all trade barriers among themselves (free trade would exist), but they would have common trade barriers with all other nations. Thus, any tariffs placed on country Z’s goods would apply in all member countries. A major common market is the European Union (EU), which consists of 25 countries (as of this writing; two more countries are expected to join in 2007). Currently, the euro is a common currency in 12 of the 25 countries of the EU. In a free trade area, in contrast to a common market, trade barriers among the member countries are eliminated, and each country is allowed to set its own trade rules with the rest of the world. For example, if both country G and country D are part of a free trade area, country G might place tariffs on country Z’s goods (country Z is not a member of the free trade area), while country D does not. A major free trade area created by the North American Free Trade Agreement (NAFTA) includes Canada, Mexico, and the United States. NAFTA took effect in 1994. In 2005, the U.S. Congress passed the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR). The CAFTA-DR is a free trade agreement between the countries of the United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. As of this writing, CAFTA-DR is not in effect. It will be as soon as the legislatures of Costa Rica, the Dominican Republic, and Nicaragua approve it. Once approved and implemented, it will reduce barriers to trade between the signing countries. These Chinese workers are inspecting shoes that will be exported all over the world. Why might some countries impose tariffs on the shoes? How might China respond? International Organizations Many economists predict that countries are likely to join in common markets and free trade areas in the near future. Increasingly, countries of the world are finding that it is in their best interests to lower trade barriers between themselves and their neighbors. The World Trade Organization (WTO) provides a forum for its member countries (148 countries in mid-2005) to discuss and negotiate trade issues. It also provides a system for adjudicating trade disputes. For example, suppose the United States claimed that the Canadian government was preventing U.S. producers from openly selling their goods in Canada. The WTO would look at the matter, consult trade experts, and then decide the issue. A country that is found engaging in unfair trade can either desist from this practice or face appropriate retaliation from the injured party. Section 2 Trade Restrictions 413 15 (390-427) EMC Chap 15 11/18/05 9:13 AM Page 414 A meeting of the European Parliament in Strasbourg, France. This body of the European Union cannot initiate legislation, but it can amend or veto policies. What is the major economic purpose of the European Union? Two other prominent international organizations are the World Bank and the International Monetary Fund (IMF). The World Bank, officially k...
View Full Document

This document was uploaded on 01/16/2014.

Ask a homework question - tutors are online