International Economics Day 1. Douglas J Young Professor Emeritus MSU

Transcription

1 International Economics Day 1 Douglas J Young Professor Emeritus MSU djyoung@montana.edu

2 Goals/Schedule 1. How does International Trade affect Jobs, Wages and the Cost of Living? 2. How Do Trade Barriers (Import Tariffs, Quotas, Regulations, FTAs) work? 3. What are Exchange Rates, How are they Determined, and How do they affect Trade? 4. What are the Causes and Consequences of International Financial Crises, eg Asia 1998? 5. How does Immigration Affect the 2 Economy?

3 Questions Please (raise your hand) and ask at any time. Alternatively, speak to me at break; and/or write a question down and give it to me; me. djyoung@montana.edu

4 Like to Read? The Choice: A Fable for Free Trade and Protectionism by Russell Roberts The Travels of a T-Shirt in a Global Economy by Pietra Rivoli Nothing is Required!

5 Trade Terminology Exports: New Goods and services produced domestically and sold to foreigners Montana wheat sold to China? Visit to Yellowstone Park by Swedes? Ford Escort sold to Brits?

6 Exports (% of GDP) Growth of Trade World WB WDI

7 Exports (% of GDP) Growth of Trade World USA WB WDI

8 Exports (% of GDP) Growth of Trade World USA China WB WDI

9 (More) Trade Terminology Imports: New Goods and services produced abroad and bought by USA French wine bought by you at Costco, MT? My lodging and meal expenses while on vacation in Italy? New Toyota Camry bought by a US resident?

10 (More) Trade Terminology Balance of Trade = Exports Imports Trade Surplus: Exports > Imports Trade Deficit: Exports < Imports For the World as a Whole: Exports = Imports, ie Balance of Trade = 0

11 % of GDP WB WDI USA Balance of Trade USA Exports USA Imports

12 Exports (% of GDP) China Balance of Trade China Exports 30 China Imports WB WDI

13 Principle of Comparative Advantage If Individuals (States, Countries) Concentrate on Producing Relatively Low Cost Products and then Trade, Both Sides of the Trade can be Better Off. Contrast with: Subsistence Farming Self-Sufficiency Autarky

14 It IS What Individuals (Mostly) Do! We (mostly) Specialize in an Occupation (Production of some Good or Service) And Trade for Most of What we Consume As individuals, our Imports are nearly 100% of our GDP (Income)! What would your standard of living be if you raised your own food, made your own house, cars, skis, books and phones?

15 Incomplete Specialization

16 Does Montana Obey the Principle of Comparative Advantage? Many things are not traded, especially Health, Education, Other Services But MT Exports relatively Few things and Imports Many, Many More Exports: Agriculture, Tourism, Energy Imports: Cars, Most Foodstuffs, Appliances, Furniture, some Financial Services, Recreational Equipment,

17 Would MT be Better Off without Imports? Can Bananas be Grown in Montana? Can Cars be Made in Montana? Answer to Both: Yes, but they would be very expensive.

18 A Simplified Example Two Countries: USA and China Two Goods: Soybeans and Toys Productivity (Output per Worker-Year) USA Beans 500 tons/yr CHN 100 tons/yr Toys 50,000 ST/yr 30,000 ST/yr

19 Advantages Absolute Advantage: Higher Productivity => Higher Income USA has Higher Productivity in both Beans and Toys, so it will have Higher Income

20 Advantages Absolute Advantage: Higher Productivity => Higher Income Comparative Advantage: Relatively High Productivity USA: Comparative Advantage: Beans CHN: Comparative Advantage in Toys

21 Gedanken Experiment Shift Labor toward Comparative Advantage: USA: Shift 1 Worker from Toys to Beans CHN: Shift 3 Workers from Beans to Toys Changes in Output USA CHN Total Beans Toys -50, , ,000 The World is Richer!!!

22 Trade Myth #1 Myth: Trade is a Zero Sum Game: What One Country Gains from Trade, The Other Country Loses Reality: Both Countries Can Gain from Trade

23 Trade Myth #2 Myth: Countries with Low Labor Productivity Can Not Benefit from Trade, Because They Can Not Compete with High Productivity Countries Reality: Trade Depends on Comparative Advantage - Not Absolute Advantage

24 Trade Myth #3 Myth: High Wage Countries Can Not Compete with Low Wage Countries Reality 1: Wages Reflect Differences in Productivity (Absolute Advantage) Reality 2: Trade Depends on Comparative Advantage - Not Absolute Advantage

25 Day 1 Part 2 Who Wins and Who Loses from Trade The Labor Market

26 Does Everyone Gain? Recall, When the USA Produces Extra Soybeans for Export and China Produces Extra Toys to Sell to USA, Total World Output of BOTH Soybeans AND Toys Increases, i.e. The World is Richer But How These Gains from Trade are distributed between the USA and China depends on the exact Deal.

27 Even if the USA Gains, Does Everyone in the USA Gain? No. Winners: Industries (Companies, Investors, Workers) Who Produce Exports Consumers of (Lower Priced) Imports Losers: Industries (Companies, Investors, Workers) Who Compete with Imports

28 What Does It Mean to Say the USA Gains? Gains to USA Winners Exceed the Losses to USA Losers Examples When we Talk about Trade Policy next Week

29 (A Bit of Politics) Since Some People Win while others Lose, Trade is a Political Issue Economics Helps to Understand Who the Players are, What is Motivating Them, and to Think about the Consequences of Policies (Tariffs, Free Trade Agreements, etc.)

30 Gedanken Experiment Shift Labor toward Comparative Advantage: USA: Shift 1 Worker from Toys to Beans CHN: Shift 3 Workers from Beans to Toys Changes in Output USA CHN Total Beans Toys -50, , ,000 The World is Richer!!!

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32 Perdent of Total Population Rural Population of China WB WDI

33 Percent Below Poverty Line Poverty in China World Bank < $1.25/day < $2/day

34 Percent of Population USA Urban Population 80 New Old Farm

35 Yes, but It s one thing for a worker to move from agriculture to simple assembly work, but it s quite another to move from the factory to another job requiring more/different skills. What has happened to Hours Worked Classified by Industry?

36 Millions of Hours USA Hours Worked by Industry 250, , , ,000 50,000 Goods Services

37 Billions of 2009 Dollars Output by Industry 12,000 10,000 8,000 6,000 4,000 2,000 Goods Services

38 2009 Dollars per Hour Worked Productivity $140 $120 $100 $80 $60 $40 $20 Goods Services $

39 Millions of Hours Hours Worked in Manufacturing 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,

40 Trade Theory - II A Country will Export Goods and Services which Intensively Utilize Factors of Production with which the Country is Relatively Well Endowed Example: USA has more (good) Agricultural Land relative to Labor than China does USA Export Agricultural Products China Export Labor Intensive Products

41 Labor Skills USA is Relatively Well Endowed with High Skill Labor => USA Will Export Products that Intensively Utilize High Skill Labor Boeing Aircraft, I-Phone Design, Financial Services, China Will Export Products that Intensively Utilize Low-Skill Labor

42 Suppose True Which Workers in the USA would be Most Affected by the Growth of Trade with China?

43 Median Hourly Wages $2009

44 CBO 2011 Median Hourly Wages $2009

45 Why Low Skill Wages Have Stagnated Technology: Machines have reduced the demand for low skill labor in agriculture, mining, manufacturing, construction, while increasing the demand for high-skill labor Trade: Products produced using low-skill labor are increasingly imported Other: Unions, Fewer Low Skill Workers

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47 Manufacturing Jobs They Don t Make em Like That Any More Manufacturing in the rich world has changed dramatically from the metalbashing days. So have the jobs that go with it. The Economist January 14, ng/ they-dont-make-em-anymore-politicians-cannot-bring-back-oldfashioned-factory-jobs

48 Increased automation guarantees a bleak outlook for Trump s promises to coal miners Devashree Saha and Sifan Liu Wednesday, January 25, 2017

49 Summary Day 1 1. We All Benefit from a vast Array of Trades on a Daily Basis. Most of Us Specialize in Producing Particular Goods or Services, and Trade for Diverse Consumption Taken as a Whole, Trade is very Beneficial compared with Autarky

50 Summary Day 1 2. But Trade in Any Particular Products Harms Some People while Helping Others Hurts: Domestic Producers who Compete with Imports Helps: Domestic Consumers of Imports and Producers of Exports

51 Summary Day 1 3. Jobs in Manufacturing Fell by Approximately 5 million One Estimate: Imports from China Eliminated 1.5 million Jobs are created in Export Industries Jobs are also created because people spend less on Imported Goods

52 Summary Day 1 4. Workers with High School Education or Less Have Fallen Behind College Educated Workers since 1980 Trade Played Some Role Technology Played a Larger Role Even without Trade, 1950s-60s Jobs are Not Coming Back

53 Day 2 Trade Policy Tariffs, Quotas, Voluntary Export Restraints Free Trade Agreements Trade Adjustment Assistance

54 $BILLIONS FOR 2015 USA Exports (+) and Imports (-) $1,510 $751 $(489) $(2,273) Census Bureau GOODS SERVICES

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56 Leading Goods Traders (Shares of World Totals) Exports 1. China (14%) 2. USA (9%) 3. Germany (8%) 4. Japan (4%) 5. Netherlands (3%) Imports 1. USA (14%) 2. China (10%) 3. Germany (6%) 4. Japan (4%) 5. UK (4%) WTO

57 USA Trade Partners $ Billions 2015 Exports 1. Canada ($338) 2. Mexico ($267) 3. China ($165) 4. UK ($123) 5. Japan ($108) Imports 1. China ($499) 2. Canada ($332) 3. Mexico ($325) 4. Japan ($164) 5. Germany ($157) Census Bureau

58 USA Trade Deficits $ Billions 2015 Country 1. China 2. Germany 3. Mexico 4. Japan 5. India European Union Deficit 1. -$ $ $ $ $30 -$103 Census Bureau