Ch 7 International trade

Balance of trade

• exports - imports

• last years was $1 trillion deficit (imports exceed exports)

  • therefore we borrow

  • US is a debtor nation (we own more to other nations than they ow to us)

Basis for international trade

Comparative advantages: a nation has a comparative advantage when it can produce a good at lower opportunity cost than can other nations

Exports

how do exports affect the market?

Imports

how do imports affect the market?

How do imports affect the economy

_ isert after

• consumers would advoctae for the two dollars they gain from the import s

• producers would lobby for tarrifts so that they dont loose the 500m

WInners, lossers, and the net gain from trade

Imports:

Exports:

Tariff

• tarfirs is a tax ben importing a product

• The Smoot-Hawley Tariff Act of 1930, architects,

how does a tariff affect the market ?

• Price rises QD decreases

• price rises QS rises

• Price rises Imports decrease

how does a tariff affect the economy

• f

• consumer surplus under the demand curve above the (_________)

• decreases societies total surplus

  • less benefit over cost

freedman

• talked about two other affected markets:

  • other domestic industries

    • worse off

  • other exporting industries

    • worse off

  • asymmetry (again)

quota

• a quantitative limit on inports

  • directly change the quantity

how does a quota affect the market?

how does a quota affect the economy

sugar example

• Tariff Rate Quota limits imports to about 20% of total U.S. production

• (The "tariff rate quota" allows some sugar in at a low rate but for amounts exceeding the limit, the tariff rises to 150% of the price of sugar)

• What are the market impacts of this protection?

  • U.S. price of refined sugar in 2019: 356 per pound

  • World price of refined sugar in 2019: 15c per pound

• What are the impacts in our model of a quota?

  • Consumer surplus: 55.6 billion lost

  • Producer surplus: $3.8 billion gain

  • Deadweight loss: $1.8 billion

  • What are the "practical" impacts?

  • Jobs saved: 3,600

  • Cost per job to consumers: $1,555,555

missing why need need tarrifs

other import barriers

• health, safety, and regulation barriers

  • ex: banning foods from certain places

• voluntary export restraints

  • like a quota to a foreign exporter of a good

export subsidies

• a payment byt the governemnt to the producer of an exported good

the case against protection

• helps an infant industry grow

• counteracts dumping

  • the sale by a foreign firm of exports at a lower price than a cost of production

• saves domestic jobs

• allows us to compete with cheap foreign labor

• penalizes lax environmental standards

• prevents rich countries from exploiting developing countries

• reduces offshore outsourcing that sends good US jobs to other countries

why is international trade restricted

• tariff revenue

  • gov of developic countries have a difficult time collecting taxes so tariffs on international trade are a source of revenue

• rent seeking

  • lobbying for special treatment by the gov to create economic profit or to divert consumer surplus or producer surplus away from others