BB

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