Chapter 13 | Globalization and Trade Policy Flashcards

1
Q

Gains From Trade

A

Opportunity cost and comparative advantage are key to understanding why specializing and trading makes us all better off

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2
Q

With voluntary trade

A

each person (or country) feels that what they get is of greater value than what they give up

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3
Q

Canada is a trading nation

A

30+ percent of Canadian GDP is from selling exports to the rest of the world

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4
Q

Absolute advantage

A

ability to produce at a lower absolute cost

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5
Q

Comparative advantage

A

ability to produce at a lower opportunity cost

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6
Q

Opportunity Cost

A

= Give up / Get

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7
Q

Comparative advantage key to

A

mutually beneficial gains from trade

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8
Q

Trade makes individuals (or countries) better off when each

A

Specializes in products and services with comparative advantage (lower opportunity cost)

Trades for other products and services

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9
Q

Even if one individual has absolute advantage in producing everything, differences in comparative advantage allow mutually beneficial gains from specializing and trading

A
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10
Q

Terms of trade

A

quantity of exports required to pay for one unit of imports

  • Must be between each trader’s local opportunity costs
  • Different terms of trade will split gains differently
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11
Q

Protectionism and Trade

A

Freer trade creates winners and losers from the competitive process of creative destruction. Concentrated losses in import-competing industries create political pressure for protectionism despite overall gains.

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12
Q

Freer trade increases competition, creating opponents to freer trade

A

Connections to new markets bring new competitors

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13
Q

With creative destruction

A

gains from specialization, trade, competition, and innovation destroy higher-cost, and less popular products and businesses

Gains are increased productivity and higher living standards

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14
Q

Losses are structural unemployment

A

technological change or international competition make some worker’s skills obsolete

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15
Q

Trade opening new international markets creates winners and losers in Canada

A

Winners - Canadian consumers, Canadian exporters and workers in exporting industries

Losers - Canadian businesses and works in import-competing industries

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16
Q

Government responses to protect losers from freer trade include

A

Tariffs - tax on imports, raising price of products to consumers

Import quotas - limits on the quantity that can be imported

Subsidies to domestic producers - government payment to domestic producers of products or services

17
Q

Tariffs

A

tax on imports, raising price of products to consumers

18
Q

Import quotas

A

limits on the quantity that can be imported

19
Q

Subsidies to domestic producers

A

government payment to domestic producers of products or services

20
Q

Unequal distribution of gains and losses produces

A

political pressure for protectionism to help the losers

Many consumers gain from free trade, but gain for each is small
Few businesses and workers in import-competing industries lose from free trade, but loss for each is large

21
Q

Protectionism leaves Canadians as a whole worse off

A

Protectionism leaves Canadians as a whole worse off

22
Q

Freer trade could benefit more people than it harms, but political pressure form import-competing industries slows international trade negotiations

A

Freer trade could benefit more people than it harms, but political pressure form import-competing industries slows international trade negotiations

23
Q

Why do people argue for protectionism?

A

limited arguments BUT
- Cultural Identity
- National Security

24
Q

Protectionism creates risk of

A

retaliation, triggering trade wars that make all countries worse off

25
Cites research by economists (Dani Rodrik and others) showing
Industries more exposed to Chinese import competition since 2000 — the year China joined the World Trade Organization — were hit hard and have not recovered. Workers in these industries don’t go to better jobs, or even similar jobs in different industries. They shuffle between low-paid jobs, never recovering the prosperity they had before Chinese competition.
26
Globalization and Sweatshops
While anti-globalization critics view sweatshops as the outcome of globalization and free-market policies, economists ask whether workers are better off or worse off with international trade.
27
Economic globalization
integration of economic activities, across borders, through markets Speeding up due to falling transportation and communication costs, elimination of government barriers to trade
28
Anti-globalization groups view
international trade as causing problems in developing countries and target World Bank and International Monetary Fund (IMF)
29
World Bank and IMF, during 1990s, attached
“free market” hands-off conditions to assistance to developing countries
30
Sweatshops
historical consequence of globalization going back 200 years – provide low-wage jobs, often under poor working conditions - Anti-globalization critics view sweatshops as exploitation for corporate profits - Economists ask the opportunity cost question – are workers' lives better off, or worse off, compared to a situation without globalization, trade, and factory jobs? - In each sweatshop country, history of rising wages over time and movement of production elsewhere
31
Governments and Global Markets
On the role of government in global markets, the hands-off position views government failure as worse than market failure; the hands-on position views market failure as worse than government failure.
32
Joseph Stiglitz and hands-on economists support
a limited role for government Want social safety net to support those left behind by trade and markets
33
The Economist magazine and hands-off economists worry
that allowing governments in will result in protectionist policies Argue that the harm poor countries suffer from globalization is caused by government protectionist policies, not by market forces
34
In trade negotiations at the World Trade Organization, power struggles over tariffs and subsidies between rich and poor countries affect ____
terms of trade
35
terms of trade
how gains are divided
36
Hands-Off position -
Leave markets alone to produce economic growth that eventually benefits all Risk is losers in import-competing industries get no assistance in adjusting Believe government failure worse than market failure
37