Question.3049 - Are you for or against free trade? Are you for or against NAFTA? What is the economic basis for trade? Explain the underlying facts that support free trade and give an example of a good that you purchased recently that is based on resource differences. What are some examples of goods that the U.S. has comparative advantage in producing? Take a look at the tag of the shirt/dress/pants you are wearing today. Where was it made? Anyone wearing “Made in America” items of clothing today? We sometimes hear people say “Buy American." Why don't we? What is the basis of international trade? What are the benefits and the costs? Under what conditions would you advocate for trade restrictions?
Answer Below:
Discussion Question 1: Are you for or against free trade? Are you for or against NAFTA? What is the economic basis for trade? Explain the underlying facts that support free trade and give an example of a good that you purchased recently that is based on resource differences. What are some examples of goods that the U.S. has comparative advantage in producing? Take a look at the tag of the shirt/dress/pants you are wearing today. Where was it made? Anyone wearing “Made in America” items of clothing today? We sometimes hear people say “Buy American." Why don't we? What is the basis of international trade? What are the benefits and the costs? Under what conditions would you advocate for trade restrictions? Answer 1:- Under simple assumptions, allowing free trade in an economy improves welfare for society overall. For example if free trade opens up a market to imports, then consumers benefit from the low-priced imports and producers are hurt by them. Similarly if free trade opens up a market for exports, then producers benefit from the new place to sell more than consumers are hurt by higher prices. However there can be arguments against free trade like invitation to international competition which may at times be unfair too. A quick look at NAFTA's legacy shows "free trade" agreements should be opposed. Working families suffer: In the US, more than 765,000 jobs have disappeared as a result of NAFTA. When these laid off workers find new jobs, they earn 23 percent less on average than at their previous employment. In Mexico, manufacturing wages fell 21 percent from 1995 to 1999, and have only started to recover. The percentage of Mexicans living in poverty has also grown since NAFTA went into effect. The environment suffers: In the maquiladora zones along the US-Mexico border, the increased pollution and the improper disposal of chemical wastes have dramatically raised rates of hepatitis and birth defects. Some of the reasons to support free trade are to specialize in goods and services that they produce more efficiently than the rest of the world and then to exchange them for goods and services that other countries produce at higher quality and lower cost. Specialization and free trade thus leads to innovation which in turn constantly provides new technologies that allow in produce more, cure more diseases, pollute less, improve education, and choose from a greater range of investment opportunities. The resulting economic growth generates better- paying jobs, higher standards of living, and a greater appreciation of the benefits of living in a peaceful society. Recently I purchased an industrial brick making machinery from china at a comparatively lower rate which otherwise would have cost me more if purchased domestically. Examples of products in which U.S has comparative advantage wheat soya bean, corn. Tags of shirt/dress/pants contains “Made in USA” We don’t hear people saying “BUY AMERICAN” because this is basically an Act that restricts the purchase of supplies that are not domestic end products. The basis for international trade is that a nation can import a particular good or service at a lower cost than if it were produced domestically. In other words, if you can buy it cheaper than you can make it you buy it. This is called specialization and exchange When international trade is expected to hurt the domestic industry drastically it is always advisable to restrict international trade. Some other reasons to restrict international trade is Immigration Policies, visitors, safety regulations, foreign relations and trade sanctions, environmental restrictions, tariffs and currency fluctuations. References: Retrieved from: http://www.globalexchange.org/resources/FTAA/oppose Economic basis for trade is comparative advantage: Retrieved from: http://wps.prenhall.com/bp_casefair_macrof_7e/32/8270/2117184.cw/index.html Comparative advantage: Retrieved from: http://www.dpcdsb.org/NR/rdonlyres/0535EFD9- 639D-4D95-B7AA-461E34742340/63026/Chapter_151.pdf Discussion Question 2: What is happening to the value of the U.S. dollar these days? What causes the value of the U.S. dollar to rise or fall? Who demands U.S. dollar? Who supplies U.S. dollar? When we purchase German products, does our demand for euro go up or down? What are freely floating exchange rates all about, and how do they work? How can the falling U.S. dollar impact your travel expenses? Why would a cheap dollar relative to other nations' currencies be good or bad for U.S. trade? Answer 2:- Over the past 2 months, the dollar has advanced almost 4 percent or 500 points against the Euro. Against the Japanese yen, the greenback has mounted an advance of 750 points or 7 percent in two months. Interest Rates, Inflation and trade imbalances, demand for dollar are various factors for rise or fall in U.S.Dollar. U.S. dollars are demanded by following:- ? Foreigners buying U.S. goods (our exports) ? Foreigners buying U.S. investments ? World investors trying to profit from expected exchange rate movements (speculators) ? Various governments trying to impact the exchange rate U.S. dollars are supplied by:- ? Americans buying imported goods ? Americans investing in other countries ? World investors trying to profit from expected exchange rate movements (speculators) ? Various governments trying to impact the exchange rate Increase in demand for domestic product appreciates the domestic currency. Hence With the purchase of German products the demand for euro goes up. A freely floating exchange rate refers to changes in a currency's value relative to another currency (or currencies). In a floating exchange rate system, when the demand for a currency is low, its value decreases just as with any other product or service. But the result of a devalued currency is that imported goods seem more expensive to the people holding that currency. What used to require $5 to buy now requires $10. Because imported goods seem more expensive, people usually start buying more domestic goods, which tends to create jobs and stimulate the economy in general. With the falling U.S. Dollar one would be more reluctant to travel. That's because everything from food to souvenirs would be more expensive. In general, weak U.S. currency makes our goods more competitive abroad and at home, which could positively influence a profitability, it also makes goods imported from abroad more expensive, and our commodities more competitive in the domestic market since it discourages imports. Vice a vis , a strong U.S. currency makes our goods less competitive abroad and at home, which could negatively influence a farm's profitability, it also makes imported goods from abroad cheaper, and our commodities (locally produced) less competitive in the domestic market. This encourages imports and discourages exports. References: Interest rates – Retrieved from: University of Florida, IFAS extension, Edward A. Evans2, Retrieved from: http://edis.ifas.ufl.edu/fe546 US Dollars Demand and Supply - Retrieved from: http://www.oswego.edu/~edunne/200ch21.html http://www.investinganswers.com/financial-dictionary/forex/floating-exchange-rate-2532More Articles From Economics
.ico)
.ico)
.ico)
.ico)
