UT GOV 312L - The Summit in China (7 pages)

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The Summit in China

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The Summit in China


Lecture number:
Lecture Note
University of Texas at Austin
Gov 312l - Issues and Policies in American Government
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GOV 312L 1st Edition Lecture 19 Outline of Current Lecture I The summit in China II What is globalization III Why do states trade Comparative advantage IV Why does globalization generate political conflict The distributional consequences of globalization V Institutions and US trade policy The RTAA VI The Bretton Woods order VII The World Trade Organization VIII NAFTA Current Lecture TMFPQ Asia Summit and trade Obama in China for significant summit reduced tariffs Big trade deal between China and the United States announced on Tuesday o Expanded IT agreement Both sides cut tariffs on tech products semiconductors 25 tariffs medical devices like MRI 8 tariffs GPS etc and pave way for broader multilateral deal in WTO China hesitates to protect new semiconductor industry Covers over 1 trillion in trade o Potentially linked to new investment pact between US and China Pressure from TransPacific Partnership no China o http www washingtonpost com blogs wonkblog wp 2013 12 11 everythingyou need to know about the trans pacific partnership These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o China wants to be part of this so it s working with the US now Republican win in midterms might help Obama o Republicans have always wanted less tariffs and more free trade so this could help a brotha out TMFPQ US China Climate Change Major agreement between U S and China to control CO2 emissions Collective action Classic case of transnational problem needing collective solution see John Kerry s op ed in NYT o http www nytimes com 2014 11 12 opinion john kerry our historicagreement with china on climate change html partner rssnyt emc rss China o Pressure from citizens to clean up smog in major cities o Does the agreement go far enough o Can China deliver on promises maybe not they rely alot on coal U S o Republican objections china was not required to do anything so why should we big cry babies o Can President Obama do this through executive order yes he has the power o Obama s legacy What is Globalization Will define here in economic terms Integration of national economies into single global economy through reduction of barriers to trade o Key barriers transportation costs political barriers to trade tariffs subsidies o as national barriers fall competition intensifies Enhances competition o In single economy most efficient producers win stay in business others go bankrupt and have to find another job o Compare US autarkic no trade compete with 316 1 million Americans for job Free trade world no barriers to trade same individual must compete with 7 125 billion How to get competition through markets Economic actors interact through price mechanism in markets Ability to charge lower prices and stay in business as indicator of efficiency Inefficient actors either get state support to remain in business or go bankrupt o Cheap loans o Government contracts o Tariffs Competition via Global Markets Political barriers to trade increase price of imported goods and DECREASE competition in domestic economy o Example textile industry in U S o Why important Textiles shirts pants underwear labor intensive industry differential labor costs make them cheaper to produce in Bangladesh US monthly salary for textile worker approx 160 hrs 12 hr 1920 Bangladesh monthly salary approx 160 hrs 57 hr 91 o Implications Bangladeshi producers can sell shirts to American consumers at lower costs than US producers o If no tariffs US producers could not sell their shirts and would go bankrupt American consumers buy cheaper shirts KEY Elimination of political barriers to trade creation of single global economy forces domestic producers to compete with most efficient producers that exist in single global economy not just with domestic producers Why do states trade Comparative advantage States allow domestic firms to engage in international trade because it increases national income generates wealth Gains from comparative advantage specialization and trade o Gains created from differences in relative ability efficiency to produce goods o Specialize in production of some good where relative efficiency cost differential with some other supplier gains are largest Generalizing what individuals do on a daily basis o We don t produce everything that we consume Instead we specialize in production of a few things make a surplus and then trade that surplus for goods services that cost us relatively more to produce Absolute v Comparative Advantage Imagine the following situation o It takes 100 labor hours in the US to make a mid sized car o It takes 150 labor hours in Japan to make the same car o It takes 200 labor hours in the US to design the next hot selling IPAD app o It takes 1000 labor hours in Japan to design the next hot selling IPAD app US has absolute advantage in production of both apps and cars o Adam Smith there should be no trade between Japan and US because both goods produced more cheaply in US o Takes fewer labor hours for US to produce cars AND takes fewer labor hours for US to produce apps but To maximize national income should the US make apps and cars or just one If just one which one o You cannot make assumptions based on absolute advantage The advantage is much higher in making apps than in cars So US should make apps and Japan should make cars US can make a surplus of apps to trade for apps This is a comparative advantage States should specialize in their comparative advantage Answering these questions by asking another do efficiency gains in apps outweigh efficiency gains in cars David Ricardo focus on comparative cost across both goods and countries o In this case US efficiency gains much larger 500 v 150 in apps than cars Therefore should focus production where relative costs lower i e apps Can generate surplus income to purchase things produced more cheaply abroad o States always have comparative advantage in something should specialize in production of that good and then trade Trade as a means of indirect production Implications o States can increase aggregate income via production specialization AND trade American auto workers are not just competing with Japanese auto workers for jobs they are also competing with American software programmers in Austin for jobs US should move all car makers to software but this would mean retraining the worker Domestic Distributional consequences of globalization Even though

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