NAFTA, GATT and the Euro. Tariffs, quotas, and trade deficits. Dumping, non-tariff barriers, and protectionism. This is the language of international economics, and people all across the globe are speaking it in newspapers, corporate offices, retail stores, and union halls.
In this lecture, we are going to look very closely at some important issues in international trade. To begin this lecture, we will look from a theoretical perspective at why nations trade from a. In doing so, we will learn about Adam Smith’s theory of absolute advantage and its much more compelling cousin, David Ricardo’s theory of comparative advantage. We will also demonstrate the gains from trade.
Once we get these concepts down, we will turn to the thorny issue of trade barriers and protectionism, taking special care to explain the important economic and political differences between protectionist tools such as tariffs, quotas and non-tariff barriers. After a discussion of the pros and cons of protectionism, we will end the lecture with an examination of important multi-lateral trade agreements such as those embodied in NAFTA and the GATT.
Please note that this lecture is identical to Lecture Nine in the Power of Macroeconomics lecture series. This is because some professors and instructors prefer to introduce the concepts in this lecture in a macroeconomic context while others prefer a microeconomic context.
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|
|
McConnell &
Brue |
Samuelson &
Nordhaus 16th Edition |
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Complete textbook |
37 |
6, 37 |
35 |
35 |
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Microeconomic split |
23 |
6, 24 |
21 |
20 |
1) Introduction
2) A Statistical Foundation
3) Why Nations Trade
a) Absolute Advantage
b) The Theory of Comparative Advantage
¨ Ricardo’s Analysis of Comparative Advantage
¨ Before Trade
¨ After Trade
4) Trade Barriers and protectionism
a) Tariffs
b) Quotas
c) The Deadweight Loss of Protectionism
5) The Protectionist Arguments
a) National Defense
b) Competition from Cheap Foreign Labor and Saving Jobs
c) Dumping
d) Retaliation
e) Terms-of-trade or Optimal Tariff
f) The Infant Industry Argument
6) Non-tariff Barriers to Trade
7) Multilateral Trade Negotiations
a) GATT
b) NAFTA
c) The European Union
Key Questions for Lecture
Fourteen
1) Explain the theory of absolute advantage.
2) Explain the theory of comparative advantage.
3) What is the difference between a tariff and a quota?
4) Illustrate the deadweight loss of a tariff versus a quota.
5) Why, from a political perspective, are quotas often preferred to tariffs?
6) Briefly summarize the six major arguments in support of protectionism.
7) When does dumping occur?
8) Provide several examples of non-tariff barriers to trade.
9) What is the GATT?
10) What is NAFTA?
11) Describe the European Union.