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Chapter 7Chapter 8- International FinanceChapter 9- International Monetary RelationsChapter 10INR 2002- Notes for Exam 3Chapter 7The Puzzle:- If trade between countries is mutually beneficial, why does every country restrict trade?Mercantilism- Extensive state regulation is in the economy’s interest- The state should protect its own economic interests at the expense of others.Liberalism- Adam Smith was one of the first to tell us- the market ensures that pursuit of self-interest helps the public good- States don’t care what others gain, as long as they gain- Most important goal is maximizing wealth, minimizing waste.What we will learn about trade- Today, internationally trade is largely free- However, trade policies often differ between industries- Barriers to trade hurt economic growth overallo Countries do so to protect domestic industries- But free trade creates winners and losers- International institutions help make cooperation on trade policy possibleWhat’s so good about trade?- The core concept of the economics of trade is comparative advantage- Differs from absolute advantage: the ability to do something better than othersComparative Advantage- States are better at making certain goods than other goods- States specialize in the goods they can make efficiently- They trade for the goods they can’t make efficiently- Every country has a comparative advantage in something- It is not necessary to have an absolute advantage to produce and export a productWhat’s So Good about Trade?- Free Trade allows a country to pursue its comparative advantageo Importing goods that we cannot make very well allows us to focus on more efficient industries- Restricting trade (protectionism) is costly to consumersWhere does comparative advantage come from? (Hecksher-Ohlin Theory)- All countries have basic factors of productiono Land, Unskilled labor, Capital for investment ($), human capital (skilled labor)- Some countries have more of these things than others (endowed with capital,but not labor)- Production of goods uses different factors in different amounts- Countries have a comparative advantage in goods that use their abundant factorso More supply, cost of production goes down- Countries will specialize in and export goods that use their abundant factors of production- They import goods that use their scarce factors of production - Industrial countries are rich in capital and skilled laboro What type of products will they export?o Steel, guns,- Developing countries are rich in land, raw materials, or unskilled laborso What types of products will they export?o Diamonds, unskilled labor, resourcesWhat explains trade patterns?- Other economic links such as shared currencies encourage trade.- Noneconomic factors such as diplomatic relations also influence trade patterns“Walmart Movie Day”- watched part 2 of movie- Heart of strategythinking and planning at what will be opening price (items that are priced at rock bottom, where Walmart hardly profits from selling it at such a low price)o In order to get you in to buy things that aren’t the opening price1950’s Walmart had to compete with other nations overseas- Low cost items from Asia regardless of “American bought campaign”1970’s- huge influx of international products, imported products- Overwhelmed with merchandise, impact dramatically increasedWalmart game was heavily reliant on China- There were much higher profits on items made in low cost Asian imports (60-70%)o Pressure on American sellers for low opening points, need to put facility in China Move to China to meet low pricesPresident Clinton agreement to open China’s market to American Products- Tremendous profit- When opened to Western businesses, boom in growth- Backbone of industry might is migrant Chinese workers who work and live atfactorieso 30, 25, to 50 cents an hour, do anything to move forwardHundreds of billions of dollars of American investment- Walmart has center in Southern Chinao 6,000 global suppliers, 80% in Chinao Specifications, price, quality teach supplierso Tough demands- Bring competing people into offices with high pressure to reverse biddingo Better deal for importer- TCL largest TV producer, huge exporter to Americao Walmart accounts for almost all exports, increase speed to keep upShin Jin- 3rd busiest port in world, Walmart’s biggest- Walmart & China determined to take overo $15 billion worth of goods per yearo gateway for overseas suppliers into America- Promise of American exports to Chinao $36 billion in consumer products, export in $3 billion in raw materials $120 billion trade deficit with ChinaOverall, this benefits China way more than America- Chinese consumers can’t afford American products- Jobs eliminated but not directly linked to unemployement- Theoretically gains from trade overcome losses- Impact seen all over US, China small town w/factories and farms1940s, 50s, and 70s- All of a sudden, huge pressure b/c of international importo Lost Saño contract because of Walmart- Foreign competition, China 1/3 of marketo Hobson filed trade complaint b/c Chinese pricing lower than world market Walmart chose the Chinese side…Why would an American company testify to support jobs overseas? They won case, Chinese seen as dumping, new tarrifsWalmart is helping China b/c they are creating jobs where others jobs were lost - However, they are getting paid way less- Creative destruction, destroying competitorsIs Walmart good for America?- Lower prices are good, but workers ability to earn a livable wage decreasesIn 2004, $285 billion deficit, $162 trade deficitMarch 3rd If comparative advantage is so great, why don’t states always trade?- Trade restrictions are the rule, not the exception- Protectionism- The imposition of barriers to restrict imports. Commonly includes devices including tariffs, quotas, and other non-tariff barriers - Trade barriers- Any government limitation on the international exchange of goods.Tools of protectionism: Tariffs- Tariffs: taxes on imports- Tariffs make foreign goods more expensive than domestic goods- Ultimately, the consumer pays tariffsTools of protectionism: Non-tariff barriers- Quotas: limits on importso Subsides, tax breaks, price guarantees- Restrictions and Regulations- Economic nationalismo Trying to do something give an incentive to push “American” productstowards Americans- Infant industrieso Example- Putting up barriers towards northern cars, and making South Korean cars


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FSU INR 2002 - Notes for Exam 3

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Notes

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Exam 3

Exam 3

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WAR

WAR

7 pages

Exam 2

Exam 2

15 pages

Origins

Origins

16 pages

Chapter 9

Chapter 9

13 pages

Exam 2

Exam 2

15 pages

EXAM 2

EXAM 2

6 pages

Exam 2

Exam 2

4 pages

Chapter 9

Chapter 9

15 pages

Exam 3

Exam 3

10 pages

Exam 2

Exam 2

11 pages

Exam 1

Exam 1

9 pages

CHAPTER 1

CHAPTER 1

129 pages

Exam 2

Exam 2

22 pages

CHAPTER 6

CHAPTER 6

21 pages

Test 2

Test 2

20 pages

Test 2

Test 2

20 pages

CHAPTER 2

CHAPTER 2

19 pages

Chapter 5

Chapter 5

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Midterm

Midterm

3 pages

Test 1

Test 1

20 pages

Exam 1

Exam 1

13 pages

Civil War

Civil War

24 pages

Civil War

Civil War

24 pages

Final

Final

9 pages

Exam 1

Exam 1

9 pages

Exam 2

Exam 2

10 pages

Exam 2

Exam 2

9 pages

Exam 1

Exam 1

9 pages

CHAPTER 2

CHAPTER 2

10 pages

Midterm

Midterm

5 pages

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