http://www.fte.org/teacher-programs/one-day-programs/workshop-powerpoints/

Table of Contents

INTRODUCTION

THE BASICS OF TRADE LESSON 1: THE BASICS STILL APPLY: DOMESTIC OR

INTERNATIONAL, A MARKET IS A MARKET Addendum: Overview of U.S. Involvement in International Trade

Activity: The Magic of Markets Activity: Tag Check

LESSON 2: BRIDGES AND BARRIERS TO TRADE Activity: The Euro: Currency Exchange and Transaction Costs Activity: U.S. Sugar Policy – A Sweet Deal?

Table of ContentsTRADE ISSUES

LESSON 3: TRADE AND LABOR: SWEATSHOPS Activity: Standing Up for Sweatshops?

LESSON 4: TRADE AND JOBS Activity: The “Giant Sucking Sound” – Job Woes or Labor Flows?

LESSON 5: TRADE AND THE ENVIRONMENT Activity: Trash

THE MECHANICS OF TRADE LESSON 6: THE BALANCE OF PAYMENTS ALWAYS BALANCES

Activity: Balance of Trade Among States LESSON 7: INTERNATIONAL MONETARY EXCHANGE

Activity: Foreign Currency and Foreign Exchange

RESOURCE LIST

http://learnliberty.org/videos/why-do-we-exchange-things

“The Shopping Game”

Classroom Activity:

To Convert Pinks, Blues, and Yellows

For

5 Yellows, You Can Buy

For

2 Blues,

You Can Buy

For

1 Pink,

You Can Buy

2

Blue

1

Pink

5

Yellow

1

Pink

5 Yellow

2 Blue

Conversion TableFor

5 Yellows, You Can Buy

For

2 Blues,

You Can Buy

For

1 Pink,

You Can Buy

3 € 3 € 3 €

2

Blue

1

Pink

5

Yellow

1

Pink

5

Yellow

2

Blue

The “Giant Sucking Sound”

Classroom Activity:

Checklist: The demand for labor is derived demand. Market prices of products and labor shape employers’ hiring

decisions. labor is a cost of production profit = price – cost

Hiring decisions are made at the margin. “What is your marginal revenue product?”

Wages are a function of productivity. labor productivity = output per man-hour

Productivity Labor productivity is determined by a number of factors,

some under control of the worker himself and some the result of the conditions of employment. the worker's physical abilities; the worker's level of education; the type and amount of equipment (capital) available;

including infrastructure other factors and conditions specific to the job location

regulations unions

Adding workers affects productivity at the margin specialization increases productivity diminishing marginal returns = reduction in

productivity

1 Kitchen - How Many Cooks?

# cooks

#pizzas made

# additional pizzas from hiring this

cook?

What happened?

0 0 0

1

2

3

4

5

6

No Cook – No Pizza !

10 10

25

45

55

55

40

15

20

10

0

-15 Get her out of the way !

Things aren’t so hectic

Extra guy – helps who ever is behind

1 baker+1 prep+1 waiter – what a system!

1 baker, 1 prep and waiter

Good cook – does everything himself

Scenario

In college, Maria and Mario started a t-shirt business out of their parents' garage. Now they've graduated, and would like to expand the business and become the bosses instead of the "do-everything" people.

They've made a list of the different tasks involved in the business - most of which they now do themselves. They figure there are 2 kinds of tasks in the t-shirt business:

Skilled •

Bookkeeping

Marketing

T-shirt Design

Advertising

Shipping & Ordering

Unskilled or low-skill

Taking orders

Cutting Patterns

Sewing

Printing

Labeling

Packing

Delivery

Every person they hire means one less thing they have to do themselves - and they can choose to do the things they enjoy most - like the design and marketing, for example.

The question is how many people to hire.

Mario & Maria’s dilemma

Output, Additional (Marginal) Product, and Additional (Marginal) Revenue

T-shirt price (P) = $_________

YELLOW CARD WORKERSYELLOW CARD WORKERS PINK CARD WORKERSPINK CARD WORKERS

#Hired

T shirtsMade

AddedProduct

(MP)P xMP

#Hired

T shirtsMade

AddedProduct

(MP)P x MP

1st 5 1st 8

2nd 8 2nd 14

3rd 10 3rd 19

4th 11 4th 22

5th 12 5th 24

6th 12 6th 25

$50

3

2

1

1

0 1

2

6

5

3

85

$20

$10

$10

$0

$30

$20

$30

$60

$50

$10

$80

$10

Round #2 – Wages Paid Round #2 – Profit Calculation

Yellow Card Pink Card # t-shirts produced (pink+yellow)

(from chart)

Worker Wage Worker Wage

Hired Paid Hired Paid X Price of t-shirts X $ 10

1st 1st = $

2nd 2nd = TOTAL REVENUE

3rd 3rd

4th 4th — $

5th 5th — TOTAL COST

6th 6th

$= PROFIT Round #2

Sub-total +Sub-total = Total cost

Part 2: Make It Work Circles

Composition: Create discussion groups: go to your last employer All roles represented

Problem: Market growth Difficulty hiring yellow-card workers

Apparel Sourcing, Cutting, Sewing, Distribution"A Relationship of Trust and Profitability"

The North America Free Trade Agreement has opened new opportunities for trade in the apparel industry between Mexico and the United States. Peñyasa was incorporated in 1997 as a garment manufacturing company to service the U.S. market.Peñyasa's cutting and sewing plant is a world class facility with an output capacity of 60,000 dozens per month with 450 operators. Peñyasa's management team is a blend of experienced professionals from different fields that fully understand the concept of global sourcing.Our labor costs are low - average 50% - 75% below comparable US rates. Work quality is high. We guarantee to cut your costs by 30-50%!Sourcing with Peñyasa will significantly reduce costs and add value to your entire operation, allowing you to concentrate on sales, marketing, and management.

Who?Helped or hurt by

"exporting" unskilled jobs

to Mexico?

How?

Employer

US Skilled worker

t-shirt consumer

Mexican unskilled worker

US Unskilled worker

helped

helped

helped

helped

Lower production cost means better able to compete and more profit

As company grows, more skilled positions available. More profit = higher incomes for workers

Unskilled worker may lose job, but more jobs because of growth. Worker needs education and training to take advantage of growth

More opportunities for employment and income – and accumulation of skills, too

Lower t-shirt prices

Short run – hurt

Long run - ???

The Economist, special report: “Here, There, and Everywhere” January 19, 2013

Outsourcing, Offshoring, and Re-shoring

Comparative Advantage is Dynamic

Re-shoring

Career Education Questions: College or Training?

NAFTA at 20

http://www.economist.com/news/briefing/21592631-two-decades-ago-north-american-free-trade-agreement-got-flying-start-then-it

Mixed Results: “Did NAFTA Help Mexico?”Center for Economic & Policy Research, February, 2014

http://www.cepr.net/documents/nafta-20-years-2014-02.pdf

“Table 1 shows Mexico’s annual per capita GDP growth rate compared to the rest of Latin America (South America and Central America). Mexico’s growth ranks 18th of 20 countries. From these numbers, and in the absence of any natural disaster or war in Mexico during the past 20 years that could account for such poor economic performance, it would be difficult to argue that Mexico would have done even worse in the absence of NAFTA.”

Mexico ranks 18th of 20 Latin American countries in growth of real GDP per person, the most basic economic measure of living standards. From 1960-1980, Mexican real GDP per person almost doubled, growing by 98.7 percent. By comparison, in the past 20 years it has grown by just 18.6 percent. Mexico’s per capita GDP growth of just 18.6 percent over the past 20 years is about half of the rate of growth achieved by the rest of Latin America. If NAFTA had been successful in restoring Mexico’s pre-1980 growth rate – when developmentalist economic policies were the norm – Mexico today would be a relatively high income country, with income per person significantly higher than that of Portugal or Greece. It is unlikely that immigration reform would be a major political issue in the United States, since relatively few Mexicans would seek to cross the border.

“NAFTA also increasingly tied Mexico to the U.S. economy. Figure 11 shows how the Mexican economy has moved with the U.S. economy over the past 20 years. Much of this synchronization is because 71 percent of Mexico’s exports now go to the United States. Unfortunately, 1994 was a particularly bad time for Mexico to hitch its wagon to the United States. First came the peso crisis, which was brought on by the U.S. Federal Reserve’s increases in U.S. short-term (policy) rates beginning in 1994. Mexico lost 9.5 percent of GDP in two quarters during the resulting crisis and recession, which started in December of 1994 and continued into

the first half of 1995.”

. . . Perhaps more importantly over the longer run, the U.S. economy was just beginning a period in which its growth would be driven by enormous asset bubbles. . . . Mexico’s loss of output from the U.S. Great Recession was the worst in Latin America . . . “

“It is also worth examining where Mexico would be today if its income per person had continued to grow at the rate that it did over the two decades prior to 1980. This is shown in Figure 3. This result was not impossible, as can be seen by the comparison with South Korea, which grew at a similar rate as did Mexico (although from a lower starting point) from 1960-1980, and did not suffer from Mexico’s growth collapse thereafter. “

NAFTA fostered a growing US trade deficit.• Short response: Not perceptible.

Trade with Mexico raised US unemployment. • Short response: Not perceptible.

Job loss depressed US wages, especially in manufacturing.• Short response: In some cases, but not across the board. The boom

in US agricultural exports turned rural Mexicans into illegal emigrants.

• Short response: No connection.Apart from agriculture, NAFTA abetted illegal immigration.

• Short response: The opposite.•Mexican growth has not achieved the rate anticipated by NAFTA proponents.

• Short response: A fair criticism.

“NAFTA at 20: Misleading Charges and Positive Achievements” Peterson Institute for International Economics, May 2014

http://www.iie.com/publications/pb/pb14-13.pdf

Recent Studies of NAFTA:

NAFTA at 20: Misleading Charges and Positive Achievements Peterson Institute for International Economics, May 2014

http://www.iie.com/publications/pb/pb14-13.pdf

International Trade Statistics Overview 2013 – World Trade Organizationhttp://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e.pdf

“Did NAFTA Help Mexico?”CEPR – Center for Economic and Policy Research, February, 2014

http://www.cepr.net/documents/nafta-20-years-2014-02.pdf