Explain the reasons for trade restrictions and why economists don't like them.
There are two trade agreements that support free trade.
Most economists oppose trade restrictions based on the theory of comparative advantage.
The public and politicians are more dubious.
Donald Trump's election as president caused free trade to come under scrutiny.
He said that the United States had signed free trade agreements that were bad for America and that he was going to pull America out.
Such issues are sider in this chapter.
We begin by considering the pattern and nature of trade, then we discuss the variety of trade restrictions that governments can impose, and why most economists would advise President Trump against pulling out of the United States' previous trade deals.
Let's begin with some numbers to understand the nature and dimensions of international trade.
The ratio of world trade to U.S. GDP was close to 60 percent.
The ratio fell to less than 30 percent in 1935.
It was only 20 percent in 1950.
With world trade amounting to $42 trillion, it is about 220 percent.
International trade has been growing, but with significant fluctuations.
When output rises, interna tional trade rises, and when output falls, international trade falls, there are two reasons.
The decrease in world income during the Depression of the 1930s caused a large decrease in trade and it was worsened by a worldwide increase in trade restrictions.
The table below shows the importance of the shares of exports and imports for different countries.
The Netherlands has the highest exports compared to total output, while the United States has the lowest.
The Netherlands' imports are the highest percentage of total output.
The U.S. exports are the lowest.
The relationship between imports and exports is not random.
In most countries, imports and exports are equal, but in any particular year that can be rough.
In the last few years, imports have been significantly more than exports for the United States.
As I'll discuss, that situation can't continue forever.
The majority of U.S. exports and imports involve large quantities of goods.
Most of the international trade is in manufactured goods.
The Figure 10-1 shows the trading partners of the United States.
Canada, Mexico, and Canada make up the largest percentage of U.S. exports to other countries.
The Pacific Rim and the European Union are the largest regions in which the U.S. exports.
China, Canada, and Mexico are countries that the United States imports a lot from.
The countries we export to are also the countries we import from.
Canada, Mexico, the European Union, and the Pacific Rim are some of the major countries that trade with the United States.
The nature of trade between the United States and other countries is constantly changing.
In the last few years, imports from China, India, and other East Asian countries have increased.
2.5 percent of all U.S. merchandise imports were from China in the late 1980s.
They make up 20 percent of the total.
India's imports have increased 20-fold from 0.1 percent to 2 percent of all goods imported.
Goods and services that the United States imports have changed.
The nature of the U.S.
China's imports of technologically advanced goods have changed recently.
The nature of the goods that a country produces and exports up the technological ladder is typical for developing countries.
In the post-World War II era, it characterized Japan, Korea, and Singapore.
Foreign companies that were Subcontractors for U.S. companies are now competitors of U.S. companies.
In the future, you can expect a lot of Chinese companies to become household names because of the development of major global firms.
We can expect the nature of trade to change even more in the future, as technological changes in telecommunications continue to reduce the cost of voice change even more.
There is no need for production to occur in the area where the goods are consumed.
Financial accounting, typesetting of texts, and research can be done almost anywhere with the click of a mouse.
The customer service calls for a U.S. company and it can be answered in India, which has a large English-speaking population and low wage rates.
India trains its employees to speak with a Midwest U.S. accent to make it less apparent that the call is being answered in India.
There has been a lot of discussion about outsourcing to China and India recently, and it is worthwhile to consider what is and is not different about trade with China and India.
What isn't different is the existence of out source.
For a long time, manufacturers have used overseas suppliers.
The potential size of outsourcing to China and India is different than it was to Japan, Singapore, and Korea in the 1980s and 1990s.
China and India have a combined population of over 2 billion people and many of them are well educated and willing to work for less than the U.S. workers.
As technology opens up more areas to trade, and as India and China move up the technology ladder, U.S.-based firms will likely experience much more competition.
The economic policy issue for the next decade will likely be how U.S. companies deal with this competition high-tech competition.
The economic policy issue for the next decade will be defined by the new technolo.
Difficult adjustment will need to occur if they don't.
The U.S. has a trade deficit.
Since the 1970s, the United States has had a trade deficit.
The U.S. trade deficit means that the United States is consuming more than it is paying for and will have to pay in the future.
A trade deficit isn't bad.
It's not necessarily good while you're doing it.
If you were a country, you'd be running a trade deficit since you're consuming more than you're exporting.
One aspect of trade that is important not to forget is the U.S. economy.
International trade has social and cultural dimensions.
Much of the chapter deals with eco back in the 1800s.
If the reference period were earlier than the late social implications of trade, the statement would not be nomic.
Let's look at an example from history in the 1600s, 1700s and most of the 1800s.
Greek ideas and philosophy were lost to Europe more than they were to the US in the Middle Ages.
The American nation grew when barbarians invaded.
The Renaissance of these ideas and philosophy was only possible because of the trade between gold, agricultural produce, and natural resources.
Many of our traditions came from tariffs.
The Renaissance was imported from abroad and international issues played a significant role in the wars fought on U.S. soil.
Influenced by international trade until the 1900s.
Had there been no study of the U.S. economy indepen trade, our entire philosophy of life would have been disrupted.
We don't focus on these immigration in economics courses.
The United States is a country of immigrants.
The United States adopted technical issues such as the reasons for trade in the late 1800s.
The U.S. economy has broader implications as it becomes more integrated with the world economy.
The isolationist aspect to the story that otherwise might be forgotten is added by them.
Living off past savings, getting support from your parents or spouse, or borrowing.
There are the same options for countries.
They can live on foreign aid, past savings, or loans.
In the past, the United States has had a trade deficit.
It acquired a lot of foreign assets.
The United States is a large debtor nation because of its large trade deficits.
The United States has borrowed more from other countries.
The cushion of being a creditor has been replaced by the trials of being a debtor and having to pay out interest every year without getting anything for the payment of interest by the debtor nation.
Reducing imports is one way countries try to reduce trade deficits.
That was one of the goals that President Trump had when he talked about trade.
The trade restrictions can keep a country from having to make adjustments to improve its comparative advantage such as reducing wages or allowing its currency to depreciate.
I will review the geometric analysis of each.
Quotas are limits on imports.
In the same way a tax encourages the consumption of domestically produced goods, tariffs make imported goods more expensive than they would have been, and so encourage the consumption of domestically produced goods.
The average increase in the price of imported goods is less than 3 percent.
The Smoot-Hawley Tariff of Demonstrate with a supply and demand 1930 raised tariffs on imported goods to an average of 60 percent.
The curve was passed.
It didn't work.
Similar tariffs were imposed by other countries.
The effects of the tariffs convinced many economists that free trade is better than trade restrictions.
The WTO has an enforcement system that is weak.
Rounds of negotiations resulted in a decline in worldwide tariffs.
The negotiations that began in 2002 did not lead to an agreement.
The focus of economists was to save existing trade agreements, not add new ones.
The effect of a quota on equi librium price and quantity is the same as the effect of a restriction on trade.
Both increase price and decrease quantity.
The supply curve is shifted up by the amount of the tax, as shown in Figure 10-4.
There is a difference between tariffs and quotas.
The government doesn't collect revenue in the case of a quota.
The price to fill the quota is called P1 T. Firms compete very hard to get the Quotas.
Trade patterns are affected by tariffs.
Light trucks from Japan have been subject to a tariffs in the United States.
Most of the trucks you see are produced in the United States.
By Q1 Q0, you can get a lot of insight into the patterns of trade, as there are many similar examples.
If you assume that the country being considered is small relative to the world economy and that imports compete with domestic producers, the issues of tariffs and quota can be seen in a slightly different way.