Using Common Sense When Talking About Trade

An article I read recently titled: Let common sense, not fear, dictate trade policy, talked about how people tend to let fear cloud their views on trade. The author, Deb Keller, talks about how people have been fed bad information about trade. She starts the article by listing three truths about trade: isolationist policies (autarky) never end well, agriculture has benefited from trade, and foreign governments don't always follow the rules. She then goes on to explain why the agriculture has benefited from free trade in the past, and why it would benefit from TPP (Trans Pacific Partnership).

According to Keller, incomes in America are 9% higher because of trade and that eliminating trade barriers would increase incomes by 50%. We have seen this in class, as free trade benefits the participating countries and increases wages in the winning sectors. While some industries lose, the gains outweigh the losses. With agriculture becoming a capital intensive industry recently, it benefits from being in a capital-abundant country. Free trade increases the return to capital and the return to land for farmers in the agriculture sector.

While reading the article, The politics and economics of offshore outsourcing, N. Gregory Mankiw and Philip Swagel talk about offshoring outsourcing and the effect on the United States. They gathered data, from about 1990 to about 2004, regarding the Bureau of Economic Analysis and comparing employment and income to United States and foreign corporations. 

In class, we learned that there are different industries that use offshore outsourcing and that both countries can gain, as a result, of this. Technology can also play a part in offshoring outsourcing because of the example used in last class and given that technology is ever changing. 

Following a Proven Model

           As talked about in class many times, we all know that Apple outsources the production of their phones and does not do it in house. Blackberry is soon to follow suit, also focusing on software as Apple has been doing. This can provide many benefits to the company that can lead to increased sales and a cut in production prices, but it also comes with a risk.
            In an article I read on Phys.org Outsource, the author explains how and why Blackberry has decided to outsource the production of its phones. "BlackBerry, which a decade ago was among the world's largest smartphone makers, has seen its global market share slip to less than one percent as Apple and Android devices have dominated." (Phys.org) I get the feeling that Blackberry is taking a good hard look at their business model and trying to pick apart the pieces that are leading them to their immanent failure. One of their moves is to bring outsourcing into the equation by enlisting Indonesia to complete that task.
          Blackberry doubled their software revenue in the last year which leads me to believe that that is why they want to make software the main focus of the company. Although, the risk associated with outsourcing the production can include a greater number of defects in the product or less skilled workers completing the good, they still feel that it is a necessary risk to take. This will be in the form of a contract and will surely reduce production costs across the board freeing up more money for factors such as research and development.
         On the other hand, this can have a negative viewpoint from a lot of Americans because they will see it as jobs going overseas. We know from class that this is a very complicated issue and doesn't just consist of a "lose a job here, gain a job overseas" approach. In the end, the company has to do what they believe is relevant in order to survive in a competitive market in which they are bringing up the rear. If the company goes out of business a lot more jobs would be lost including to those in the production plants.

Free Trade vs. Free Movement

When the British public voted to leave the European Union in June of this year, the principle debate waging amongst the Brits, was between the movement of people and free trade. Whilst Britain enjoys the benefits of the free trade with the larger economies on the continent - the likes of Germany and France - many in the UK begrudge the open border policy in Europe which allows large immigration from the smaller economies of Eastern Europe.
It is this issue which has dominated the exit negotiations as the Conservative government seeks to strike a compromise whereby they are allowed access to the single market, or at least the large economies within it, without accepting the open border policy which has seen British services pushed to breaking point. An article in todays Wall Street Journal talks about the negotiations in greater detail: http://www.wsj.com/articles/theresa-may-wants-continued-british-trade-with-eu-post-brexit-1477054148

My argument here is that the movement of people to the UK is probably not a price worth paying for the British economy. The Heckscher-Ohlin model essentially says that countries will export products that use their abundant and cheap factor(s) of production and import products that use the countries' scarce factor(s). An increase in the size of the labour force in Britain due to immigration will make labour a more abundant factor and thus drive down demand and price. Britain currently has one of the highest minimum wages in Europe and the lowest unemployment, they have a service based economy which is the 5th largest in the world. As labour becomes more abundant, the economy will begin to export labour intensive products which may be a step backwards for the British economy.

Capital Abundant Vs Labor Abundant

In class we have been looking at the Heckschler Ohlin Model. Part of this model is looking at countries that are either capital intensive or labor intensive. The article I found China VS The US economy the writer looks at the difference in the two economies of the two countries. The article talks about how China has a more labor intensive economy. although both countries have similar unemployment rates China's labor force is much larger than USA's due to size of China's population. It would therefore be safe to assume that China has the stronger economy. However the article then discusses how the USA is way ahead with its income over the Chinese and how quality of life is better for the individual in the US. USA are a more capital intensive economy and because of this its productively is high and its labor force is more specialized. Due to the huge population in China, the workers incomes there are very low due to the high supply. The US workers get a much higher income and this seems to link to an increase the productivity of its workers. Because of the income differences between the two countries the US labor force are much more willing to work than the Chinese and this can be seen in the increase in unemployment that China has seen in the last few years.  
    However the article talks about how China's economy is growing faster than the USA's and if the US are not careful China will soon be ahead. With China's labor force size, once they invest more into capital they could have a higher utilization of capital which will increase the countries productivity massively. At the moment it seems like being capital abundant is better for a countries productivity, yet if a country such as China was willing to put its huge number of workers to use on new capital and better technology it could easily dominate in productivity and trade.

Belgian's Influence on EU-Canada Trade Deal

I read an article on the BBC about why the Belgian province may sink the EU-Canada trade deal. Belgium’s government stats that it is likely to block the deal due to fears that “it could lead to a flood of cheap imports.” This relationship has a lot of influence on the United States because the failure of this legislation, CETA, could throw a spanner on ongoing negotiations for the US and Japan and can place some doubt on the post-Brexit Britain can negotiate a favorable and speedy deal with Europe. This deal puts heavy pressure on Canada as they are UK’s largest trading partner and puts them in an “unexpected quandary” says Christopher Sand of the Canadian Studies at John Hopkins University.

                I found this article very interesting because each week we have been able to build upon the idea of free trade benefits both countries. I find this article very interesting because in class we are not able to show ramifications of other counties negotiating trade deals or even say Brexit happening. However, it still baffles me when the article they state cheaper imports and make it sound like a bad thing. Belgian is afraid that by opening their country to Canada and allowing cheaper imports would harm and take away their manufacturing jobs. 

The American Trade Debate

In the article, Free Trade Vs. Balanced Trade by Raymond Richman, Howard Richman, and Jesse Richman, there is a debate between Hilary Clinton and Donald Trump regarding trade. The authors state that Hilary Clinton wants to support the expansion of free trade, whereas, Donald Trump wants to renegotiate trade agreements to balance trade. Our growth rate has been declining since around 1970 and has yet to bounce back, along with our trade balance. Both are seen on the graph, in the article, and Our trade balance is on a slow rise. Things that effect these include, the subtraction from demand for American products, loss of manufacturing jobs, less investment in new factories, less technological development, loss of economics of scale, and slow recoveries.

The article then goes into talking about mercantilism and how the American economic profession is ignoring trade deficits. The article ends by saying how Trump, and his chief economic advisor, want to put together a plan to balanced trade. On the other side of the argument, Hilary Clinton wants to keep trade free and Raymond, Howard, and Jesse think that the growth rate will continue to decline. Based on what we have learned in class, do you agree with their statements? Does Trump know what he is doing after all?, Does Hilary? What type of trade do you think we should be in, balanced trade or free trade? 

The Fallacies Behind Trade

The ordinary person may believe that trade is hurting our economy especially in regards to trades with China. This is a false statement that is said too many times in a day not to be addressed. Anyone who watches the presidential debates can clearly hear the candidates knocking the trade policies that we have with foreign countries insisting that we are getting swindled by these countries and it needs to stop. This couldn't be any further from the truth.
In an article I read called "Trade is Win-Win" click to find the truth it breaks down how these candidates and politicians alike are spreading lies in order to garner votes from the unknowing voter. In 1776 two very important things happened. The lesser known of these two is a publication by Adam Smith called "The Wealth of Nations" and the theories in this publication are still being used by economists today. The most dominant statement from this is that trade enhances the wealth of trading nations. How can this be? Does this mean that the candidates are lying directly to every citizen watching the debates?
It's almost simple logic if it's broken down. There has to be an agreement between each nation to trade. Why would a nation agree to trade its good if it's going to worsen the nations terms of trade? To me, it's cut and dry that if trades are occurring, both nations are benefiting from said trade.
The biggest issue arriving from the trade argument is that of American jobs. I can understand how one would assume that if we are importing a product from China that can be made in America it is putting a hard-working American citizen out of work. There are many factors that tend to lead to the diminishing manufacturing jobs in America. The least talked about one is the advances in technology. If a machine can produce what a human can, wouldn't the company rather have the machine do it? This way the company isn't paying a wage and benefits, but only a price to buy the machine and its upkeep. I'm all for generating more jobs in America, but the solution that the candidates have proposed is insane and almost surely to fail if implemented.