Slide 1CHAPTER OUTLINESlide 3What We Trade: Exports (2011)What We Trade: Imports (2011)With Whom We TradeComparative and Absolute AdvantageSlide 8Slide 9Terms-of-TradeUsing Production Possibilities FrontiersConsumption Possibilities Frontier with TradeReasons For Limiting Trade That Many Economists SupportReasons for Limiting Trade that Most Economists Do Not SupportMethods of Limiting TradeCost of Limiting TradeTariffs vs. QuotasCosts of ProtectionTrade as a Diplomatic WeaponKick It Up a Notch: The Cost of Protectionism17-1©2015 McGraw-Hill Education. All Rights Reserved ©2015 McGraw-Hill Education. All Rights Reserved Chapter 17International Trade:Does It Jeopardize American Jobs?17-2©2015 McGraw-Hill Education. All Rights Reserved CHAPTER OUTLINE•What We Trade And With Whom•The Benefits of International Trade•Trade Barriers•Trade As A Diplomatic Weapon•Kick It Up a Notch: Costs of Protectionism17-3©2015 McGraw-Hill Education. All Rights Reserved Exports and ImportsAs a percentage of GDP02468101214161820Exports/GDP Imports/GDPYearP ercen ta g e o f GD P17-4©2015 McGraw-Hill Education. All Rights Reserved What We Trade: Exports (2011)Good Billions of Dollars of ExportsTransportation equipment247.9Computer and electronic products203.7Chemicals 197.6Industrial machinery 165.7Petroleum & coal products111.6Services 630.42194.517-5©2015 McGraw-Hill Education. All Rights Reserved What We Trade: Imports (2011)Good Billions of Dollars of ImportsComputer and electronic products355.2Oil and gas 327.0Transportation equipment 317.2Chemicals 197.3Machinery, non electrical 148.5Services 434.6Total 2734.017-6©2015 McGraw-Hill Education. All Rights Reserved With Whom We Trade17-7©2015 McGraw-Hill Education. All Rights Reserved Comparative and Absolute Advantage•Absolute Advantage: the ability to produce a good better, faster, or more quickly than a competitor•Comparative Advantage: the ability to produce a good at a lower opportunity cost of the resources used17-8©2015 McGraw-Hill Education. All Rights Reserved The Benefits of Trade: When Comparative and Absolute Advantage are the Same Coffee ApplesUnited States1 2Brazil 2 1Suppose there are two countries, the United States and Brazil, and two goods, Apples and Coffee, and the production per unit of labor is shown in the table below.Clearly, there are benefits from trade. If the Americans focus on apples and the Brazilians focus on coffee and they trade with one another, more apples and more coffee is available to both countries.17-9©2015 McGraw-Hill Education. All Rights Reserved The Benefits of Trade: When Comparative and Absolute Advantage are Not the Same Coffee ApplesUnited States3 2Brazil 2 1Now suppose the Americans are better at producing both goods. The Americans have an absolute advantage in both but a comparative advantage in only Apples. There are still benefits from trade. If the Americans focus on apple production and the Brazilians focus on coffee production and they trade with one another more apples and coffee is available to both countries.17-10©2015 McGraw-Hill Education. All Rights Reserved Terms-of-Trade•The amount of a good one country must give up in order to obtain another good from the other country, usually expressed as a ratio.17-11©2015 McGraw-Hill Education. All Rights Reserved Using Production Possibilities FrontiersApplesCoffee ApplesCoffeeBrazil United StatesProduction Possibilities FrontierProduction Possibilities Frontier17-12©2015 McGraw-Hill Education. All Rights Reserved Consumption Possibilities Frontier with TradeApplesCoffee Consumption Possibilities Frontier17-13©2015 McGraw-Hill Education. All Rights Reserved Reasons For Limiting Trade That Many Economists Support•National Security•National Identity•Both of the above can be overstated easily.•Environmental Concerns•Child-Labor Concerns17-14©2015 McGraw-Hill Education. All Rights Reserved Reasons for Limiting Trade that Most Economists Do Not Support•To protect industries from competition•To temporarily aid an industry that is just emerging.•To protect an industry from competition that is dumping (the exporting of goods below cost so as to drive competitors out-of-business) its products in the US.17-15©2015 McGraw-Hill Education. All Rights Reserved Methods of Limiting Trade•Tariffs: a tax on imports•Quotas: a legal restriction on the amount of a good coming into the country•Non-tariff barriers: barriers to trade that result from regulatory actions17-16©2015 McGraw-Hill Education. All Rights Reserved Cost of Limiting TradeQ/tSDPQ/tDomestic MarketPworldSDPWorld MarketPworldPdomesticQdABCQ’sQ’dEF17-17©2015 McGraw-Hill Education. All Rights Reserved Tariffs vs. QuotasPlimitCABEPQ/tDSP*Q*QlimitLimiting trade with a quota S’}TariffFLimiting trade with a tariffA tariff raises tax revenue and a quota does not.17-18©2015 McGraw-Hill Education. All Rights Reserved Costs of Protection•Whether there is a quota or a tariff there is deadweight loss. This means that the gainers (the people who keep their jobs) gain less than the losers (the people who have to pay higher prices) lose. •The average cost per job saved via trade barriers is estimated to be $169,000 per year.17-19©2015 McGraw-Hill Education. All Rights Reserved Trade as a Diplomatic Weapon•Trade sanctions have failed•To get Castro out of Cuba•To get Iran to release our hostages in 1979-1980.•To get the Soviet Union out of Afghanistan.•To get Iraq out of Kuwait in 1990.•To have an impact on Syria during its Civil War, or Iran or North Korean regarding their nuclear ambitions17-20©2015 McGraw-Hill Education. All Rights Reserved Kick It Up a Notch: The Cost of