Thursday
3 September
1330-1500 (IS)
"There are some people, who if they don't already know, you can't tell them."
Yogi Berra
Overview
In Course #1, you already have begun a discussion of "globalization." This is a topic to which you will return frequently during the year. The term globalization generally refers to views and processes that transcend the nation-state. As a concept, globalization can have political or economic connotations. More often, though, it is economic. At the base of this is international trade and investment.
Trade is basic human behavior. In ancient times, a hunter would trade (i.e., barter) meat for vegetables from a farmer. Why? Because each man wanted or needed what the other had, and it was not realistically efficient for each to both hunt and farm. It was far more beneficial for each of them to specialize. In its essence, trade produces mutual gains by redistributing products in a way that provides an opportunity for all parties to obtain the combination of goods that they prefer to the ones they previously held.
By world standards, the United States is a large, generally self-sufficient country. Though we do not usually think about it in such terms, there is trade that occurs within the U.S. Florida orange juice is consumed in Michigan; while someone in Miami is driving a Ford from Detroit. The reasons for this are not much different from those that motivate trade between nations. Maximizing the efficient use of scarce factors of production (natural resources, labor, and investment capital) - making the most of comparative advantages - makes it in the American national interest to trade. Accordingly, through trade, we can have coffee grown in tropical climates, oil from those who can produce in excess to their needs and other products (e.g., clothing) that we can buy less expensively than we ourselves can produce. These are the same kinds of reasons that other countries buy so many goods and services from the U.S. - which, by far, is still the largest exporter in the world.
International free (unprotected) trade is a high priority objective of U.S. policy. Within the borders of the U.S. - between the states - one can see a relatively pure model of free trade. Although many of the barriers have been reduced or eliminated, no equally "clean" model of free trade exists between nations.* Barriers to trade include tariffs (taxes on imports), quotas (limits on imports), subsidies and non-tariff barriers (e.g., sanitation standards for agricultural products). The debate on free trade most often occurs (but not exclusively) between domestic producers, who do not want foreign competition and seek government protection, and consumers, whose interests are best met when they are offered the greatest variety, the highest quality and the lowest cost for goods and services.
The often hard to accept fact is that the most efficient economies must be constantly changing to remain efficient, highly productive and competitive. Thus it is that the most successful economy in the world, that of the United States, over its history has shifted emphasis from agriculture to heavy industry and, most recently, to technology - with other stops in between. American success is significantly attributable to the fact that our economy emphasizes that which it can do best.
Objectives
- Understand the essential role of trade in a free market economy, including the concepts of comparative advantage and specialization.
- Understand the nature and impact of the obstacles to free trade.
- Understand the dynamics and role of change of successful free market economies.
Issues for consideration
- What would change in your life - for better and worse - if the U.S. did not trade with foreign partners?
- How do you and the nation benefit from freer trade? What have been the costs? How do you weigh the balance?
- In your opinion, will the European Union produce free trade in that region? What are the obstacles? Will the situation become as open as "trade" between the states of the U.S.?
- What would be the costs and benefits of protecting American defense industries?
- List actual examples of trade barriers (e.g. subsidies, quotas, tariffs, protected industries) in the U.S. and other countries.
- Course #1 will discuss economic trade sanctions. How do such sanctions relate to the barriers to free trade covered in this Topic?
- To the best of your knowledge, compare the openness of the U.S. economy with that of other countries.
Required readings (70 pages)
* Baumol and Blinder: Chapters 37 (through pg. 884) (16 pgs.) and 34 (Skip pgs. 803-806 - The Graphics of Comparative Advantage), (21 pgs.)
* Heilbroner and Thurow: Chapter 17 (9 pgs.)
* "Financial Indicators," The Economist, April 24, 1999 (1 pg.)
* WTO, "Basics," http://wto.org/about/facts0.htm (2 pgs.)
* "Fifty Years On," The Economist, May 16, 1998 (5 pgs.)
* "The Beef Over Bananas," The Economist, March 6, 1999 (3 pgs.)
* "Our Friend the Trade Deficit" Robert G. Murphy, Washington Post, May 21, 1999 (2 pgs.)
* "Trade Free or Die," Robert Samuelson, New Republic, June 22, 1998 (11 pgs.)
Suggested reading
* "On The Edge," The Economist, Sept. 8, 1998 (7 pgs.)
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