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Ch. 16 Notes Continued

by: Lauren Pike

Ch. 16 Notes Continued Econ 1051

Lauren Pike
General Economics
George Chikhladze,Martha Steffens

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About this Document

These notes take a closer look at the direct and indirect effects of tariffs on the global economy.
General Economics
George Chikhladze,Martha Steffens
Class Notes
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This 4 page Class Notes was uploaded by Lauren Pike on Monday December 14, 2015. The Class Notes belongs to Econ 1051 at University of Missouri - Columbia taught by George Chikhladze,Martha Steffens in Fall 2015. Since its upload, it has received 22 views. For similar materials see General Economics in Economcs at University of Missouri - Columbia.


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Date Created: 12/14/15
Ch 16 International Trade and Exchange Rates Cont o determinants of exchange rates 0 tastes I specifically for foreign goods I increase in demand causes currency to depreciate and other currency with good to appreciate 0 relative income I nation s imports vary directly w income level as total income increases in US and British econ is stagnant US imports increase and demand for pounds increases 0 relative interest rates I if interest rates are higher in US but stay constant in Britain British citizens find US more attractive place to lend money 0 change in relative expected returns on stocks real estate production facilities 0 speculation Gov and Trade 0 trade protections and subsidies o tariffs taxes imposed by nation on imported goods I protective tariffs shield domestic producers from foreign competition shift sales toward domestic goods 0 import quotas limits on qtystotal value of specific items that may be imported in some period 0 nontariff barriers NTBs all impediments other than protective tariffs that nations use to impede imports includes I import quotas I licensing requirements I unreasonable product quality standards I unnecessary bureaucratic detail in customs procedures 0 voluntary export restriction VER foreign firms voluntarily limit amount of exports to a particular country I has effect of import quota 0 export subsidies gov payments to domestic producers to export goods I reduces production costs and enables producers to charge lower prices and sell more exports 0 ex ag products 0 economic impact of tariffs 0 direct effects I raise prices of imported goods to US decline in US consumption I reduce qty demanded I consumers buy fewer imported goods and have to reallocate expenditures to less desirable subs I US producers receive higher price on imported product so respond by producing more domestic products I gov gains revenue from tariffs o indirect effects I hurt domestic firms that use imported goods as inputs I bc foreigners sell fewer goods have less income to spend on US expons I promote expansion of inefficient industries that don t have comparative advantage I cause contraction of efficient industries that do have comparative advantage I tariffs decrease efficiency world trade and real output 0 net costs of tariffs I protection raises the price of product in 3 ways 0 price of imported goods increases 0 higher price of imports causes some countries to shift purchases toward highprice domestically produced goods 0 prices of domestically produced goods increases bc import competition has decreased 0 these costs exceed gains of producers and gov 0 so what gov trade protections o misunderstanding gains from trade I myth that exports are good and imports are bad I imports lowers opp cost of producing some domestically 0 political considerations 3 Arguments for Protection 0 increased domestic employment argument 0 saves US jobs used in times of recession 0 achieve shortrun domestic goods by making trading partners poorer o SmootHawley Tariff Act 1930 meant to decrease imports and stimulate US production high tariffs prompted adversely affected nations to retaliate w equally high tariffs I decreased output and income for all nations I cause of Great Depression 0 cheap foreign labor argument 0 gov must shield domestic firms and workers from ruinous comp of countries where wages are low 0 assumes not beneficial for rich and poor to trade 0 gains from trade based on comparative not abs advantage 0 protection against dumping argument 0 tariffs are needed to prevent from dumping foreign producers I dumping sale of products in foreign country prices either below costprices charged home I can lead to mono power I unfair trade practice most nations prohibit it Trade Adjustment Assistance 0 trade adjustment assistance act 2002 provides cash assistance edu training benefits health care subsidies wage subsidies over 50 to workers displaced by importsplant relocations abroad 0 economists approve bc I aids workers hurt by international trade I creates political support needed to decrease trade barriers and export subsidies o critics I only accounts for 4 ofjob loss I what makes job loss from international trade more imp that other types 0 offshoring shifting work previously done by US workers to workers located in other na ons 0 cost to Americans who lose jobs but not generally bad for econ 0 increase demand for complementary jobs in US 0 encourages domestic investment and expansion of US firms by lowering costs and keeping them competitive worldwide Multilateral Trade Agreements and FreeTrade Zones 0 nations have worked together to decrease tariffs over time 0 General Agreements on Tariffs and Trade GATT 0 after WWII o 1947 23 nations agreed to give and nondiscriminatory treatment to one another decrease tariffs through multinational negotiations and to eliminate import quotas 0 World Trade Organization WTO o GATT s successor est 1993 o oversees trade agreements and rules on disputes relating to them also provides forums for further rounds of trade negotiations o Doha Round latest sequence of trade negotiation by members of the WTO named after Doha Qatar where negotiations began o GATT and WTO positive forces in trend toward liberalized world trade 0 European Union EU 0 freetrade zonebloc o association of 27 european nations that has eliminated tariffs and quotas among them est common tariff for imported goods from outside the member nations decrease barriers to free movement of capital created other econ policies 0 North American Free Trade Agreement NAFTA 0 made of Canada Mexico US trade bloc o 1993 agreement over 15yr period a free trade zone 0 Recent US trade deficits 0 large deficits in goods and gs between 20022011 0 decreased during recession 20072009 0 causes of trade deficits 0 US econ expanded more rapidly from 20012007 than trading partners 0 other countries in recession and bought decreased of US exports 0 US trade imbalance w China bc income hasn t increased in China to buy US exports fixed exchange rate of yuan 0 US trade deficit with OPEC 0 decrease in US savings rate 0 implications of US trade deficit 0 increase current consumption I may lead to reduced future consumption bc consuming outside PP curve 0 increase in US Indebtedness I when US exports are insufficient to finance US imports US increase in debt to ppl abroad and value of foreign claims against assets in US 0 downward pressure on the dollar I surge of imports requires US to supply dollars in currency market I causes dollar to depreciation


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