Free TradeReid McWilliams

David Ricardo

Abstract

DAY 1 (Prep for Video) International Trade ISI vs. EOI Arguments for Free Trade Arguments against it Subsidies Current Negotiations DAY 2 Free Trade Video

International Trade

The exchange of goods and services between nations

CIA World Factbook

Who Trades With Who

50% of World trade Developed Developed

35% of World trade Developed Developing

15% of World trade: Developing Developing

Who Trades What

Developed Countries Technology (High tech goods)▪ Airplanes and computers

Developing Countries Basic Textiles and Food▪ Cloth, Rice, Wheat, etc.

Import-Substitution Industrialization vs. Export-Oriented Industrialization

ISI – a policy aimed to attempt to reduce its foreign dependency through the local production of industrialized products.

EOI – aims to speed up the industrialization process of a country through exporting goods in which the given nation has a comparative advantage. Anyone? The ability of a country to produce a particular good or

service at a lower opportunity cost than another country Which one demonstrates free trade principles? What are some advantages and disadvantages to

each of these policies?

Import-Substitution Industrialization

Advantages Tariffs on imported goods (usually high) Helps domestic companies

Disadvantages Decreased competition Growth Rate slower than EOI ▪ (The Life You Can Save)

Reliant on government to retain its policies

Export-Oriented Industrialization

Advantages Allows specialization in products YOU are

good at because of location, population, etc.

Strong export base allows for global competition and eventually,▪ diversification of economy.▪ GDP growth

Disadvantages Reliant on demand for their specialty

Arguments for Free Trade

Comparative Advantage Countries help each other out. But, it is also about productivity▪ Who can produce the most amount of one good

without sacrificing too much of the other good? Heckscher and Olin Trade Theory▪ Simplified: Countries have comparative advantages

in goods for which the required factors of production are abundant locally.

▪ Therefore, developing countries will have a comparative advantage in unskilled, labor-intensive products.

Arguments for Free Trade (Continued)

Economies of Scale The increase in efficiency of

production as the number of goods being produced increases.

Particularly used between developed countries to determine comparative advantage.

Product Differentiation Another way to determine comparative

advantage between developed countries.

Apple or Windows? All helps to lower overall retail

price.

Arguments Against Free Trade(Developed Countries)

Income Inequality more export opportunities would raise wages

of those primarily producing export goods while increased competition from imports would tend to decrease wages of workers producing substitutable goods domestically.

Increased Unemployment Low-skilled / Labor-intensive jobs can be

exported abroad where employees can be paid less.

NAFTA (1994) and U.S. – Korea Negotiations

Free Trade Agreement between Canada, the United States, and Mexico Controversial – Americans worried that

low-skilled jobs would be exported to Mexico

U.S. – Korea Free Trade Agreement Let Korea have our beef and cars.

Selected Bibliography http://www.econ.yale.edu/alumni/reunion99/cline.htm http://www.fas.org/sgp/crs/row/RL34330.pdf http://shopfloor.org/2010/11/u-s-exports-jobs-depend-on-all-thre

e-pending-trade-agreements/16253 http://www.youtube.com/watch?v=xRJZWfqWcs0 http://aflcionc.org/blog/ http://www.census.gov/indicator/www/ustrade.html http://www.blurtit.com/q605605.html http://webcache.googleusercontent.com/search?q=cache:RUlPF

LuCPX8J:www.reuters.com/article/idUSTRE56L1B220090722+world+exports+total+2009&cd=8&hl=en&ct=clnk&gl=us

http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm http://www.ask.com/wiki/Import_substitution_industrialization http://www.ask.com/wiki/Export-oriented_industrialization http://answers.yahoo.com/question/index?qid=2010030114464

0AAc04YG http://www.econ.rochester.edu/Faculty/jones/Palgrave_Jones_on_

Heckscher_Ohlin.pdf http://www.nytimes.com/2010/11/12/world/asia/12prexy.html?_r

=1&scp=1&sq=us%20korea%20free%20trade%20agreement&st=cse

http://en.wikipedia.org/wiki/Heckscher%E2%80%93Ohlin_model http://www.investopedia.com/terms/e/economiesofscale.asp http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreem

ent

Free Trade Economics

Global Economics - Global Exchange: Free Trade & Protection Video

http://www.youtube.com/watch?v=xRJZWfqWcs0