Would Americans be better off if we purchased less from foreigners?

• Would Americans be better off if we purchased less from foreigners?

International Trade

• In what ways do you engage in trade?

Specialization

• What do you plan to specialize in?

Milton Friedman—The story of a pencil

The Basis for all Trade:Absolute and Comparative Advantage

KarateEconomics

Absolute Advantage

• When a country can produce a good more efficiently than another country

Coffee Cashews

Country A 20 4Country B 5 1

Comparative Advantage• The ability to

produce a product relatively more efficiently, aka, a lower opportunity cost

Coffee Cashews

Country A 40 0Country B 0 6Total 40 6

Coffee Cashews

Country A 20 4Country B 5 1Total 25 5

Before Trade

After Trade

History of American Trade

• Smoot-Hawley Tariff Act—1930– Raised tariffs on

20,000 imported goods

– Result: huge decline in standard of living across all trading groups

History of American Trade

• WWII and after—promotion of free trade

• NE—Wheelan: why would we put sanctions on ourselves?

NAFTA

NAFTA

• Signed in 1994 by Clinton—created a trade bloc between US, Canada, and Mexico

Protectionism• Tariffs• Quotas• Regulations

Why Protectionism?

• Protect domestic industries and employment

• Strategic/National interest goals

• Political pressure• Protect culture

Neo-colonialism?Mexico Bribery Scandal

Fair Trade?

• International trade with a focus on quality of life and a more equitable global economic trading system

• Top 5 Worst Sweatshop Offenders

Alex Tabarrok--Economic Growth