Here's a brief Sunday reading list on the issue of China's exchange rate and US manufacturing jobs.
Simon J. Evenett and Joseph Francois on whether Chinese currency revaluation will create net jobs for the US economy (link).
William R. Cline's discussion of estimating the effect of renmimbi appreciation on American jobs (link).
Abdul Abiad, Daniel Leigh and Marco E. Terrones's analysis of cost of reducing large current account surplus (link).
Paul Krugman's discussion of Chinese exchange rate policy (link) (link)
Showing posts with label International Trade. Show all posts
Showing posts with label International Trade. Show all posts
Saturday, April 24, 2010
Tuesday, December 15, 2009
STOLPER-SAMUELSON THEOREM
Dani Rodrik offers a nice insight into one of the most remarkable theorems in international trade (link).
Friday, June 12, 2009
LABOR PROTECTIONISM IN THE U.S
Daniel Griswold, trade economist at CATO Institute, describes (link) how American labor unions oppose the free-trade agreement between the U.S and Columbia although the U.S International Trade Commission's estimates show that the free trade agreement between the two countries would boost U.S exports by about $1 billion annually. The AFL complains that Columbia is an unworthy of an agreement because of violence levied on union members (link). This may sound politically feasible, but the background is certainly much different from what AFL complains. In fact, Daniel Griswold showed that Columbian unions are as safe as American unions against political violence (link).
Recall the basics of international trade, H-O-S theorem (link) explains that international trade occurs because of the differences in relative factor abundance, i.e. differences between labor/capital ratio. Thus, a country with relative abundance in labor shall export labor-intensive products while the second country shall export capital-intensive products and services. Consequently, relative wages in labor-abundant country are lower compared to those in capital-abudant country. Why? Because in a more developed capital-abundant country, labor is scarce and, hence, relative wage is higher.
The complete liberalization of trade between the U.S and Columbia would reward the relatively abundant factor in the U.S (capital) and reduce the real reward to less abundant factor (labor). Thus, in the short run, relative wages may decline. Note that the Columbian level of productivity is less than half of the U.S level. In the long run, however, relative wages shall not decline given a staggering difference in productivity between the U.S and Columbia.
As a interest group, AFL is protecting labor againist the short-run decline in relative wages. The hindrance of free trade, in fact, harms everyone. The U.S exporters would suffer the loss of one the key Latin American markets while the Columbian exporters wouldn't absorb the benefits of free trade. On the other hand, the greatest victims of protectionist trade policy are consumers. The consumers in the U.S would be denied the freedom of choice of Columbian imports while Columbian consumers would lose the variety of choices from the U.S at a lower price, following the abolition of tariff protection.
Recall the basics of international trade, H-O-S theorem (link) explains that international trade occurs because of the differences in relative factor abundance, i.e. differences between labor/capital ratio. Thus, a country with relative abundance in labor shall export labor-intensive products while the second country shall export capital-intensive products and services. Consequently, relative wages in labor-abundant country are lower compared to those in capital-abudant country. Why? Because in a more developed capital-abundant country, labor is scarce and, hence, relative wage is higher.
The complete liberalization of trade between the U.S and Columbia would reward the relatively abundant factor in the U.S (capital) and reduce the real reward to less abundant factor (labor). Thus, in the short run, relative wages may decline. Note that the Columbian level of productivity is less than half of the U.S level. In the long run, however, relative wages shall not decline given a staggering difference in productivity between the U.S and Columbia.
As a interest group, AFL is protecting labor againist the short-run decline in relative wages. The hindrance of free trade, in fact, harms everyone. The U.S exporters would suffer the loss of one the key Latin American markets while the Columbian exporters wouldn't absorb the benefits of free trade. On the other hand, the greatest victims of protectionist trade policy are consumers. The consumers in the U.S would be denied the freedom of choice of Columbian imports while Columbian consumers would lose the variety of choices from the U.S at a lower price, following the abolition of tariff protection.
Monday, January 14, 2008
Wednesday, November 07, 2007
THE PARADOX OF FARM SUBSIDIES: EUROPEAN UNION SHOULD ABOLISH FARM SUBSIDIES
The Economist shows graphically that farm subsidies are decreasing. Between 2004 and 2006, the average OECD expenditure on farm subsidies was $280 billion in annual terms. This means 29 percent of all farm receipts. Norway, Iceland and Switzerland are the most generous subsidy-givers. Subsidies in these countries present 66 percent of farmer's receipts. Back in 1984, New Zealand ended discriminatory farm subsidies (here). The profitability and productivity of farm sector increased rapidly without subsidy handouts (here).
European Union continually retains high quotas tariff rates on imports from third-world countries. In addition, farm subsidies further harm the economic performance in third-world countries. Currently, these countries mostly have a competitive advantage in farm products export and agricultural production, so it is not hard to figure out that high level of agricultural protectionism in Western Europe discourages the export performance in countries with low level of GDP per capita, as producers and exporters have to pay "higher-than-otherwise" price on the exchange of products which they produce.
European Union continually retains high quotas tariff rates on imports from third-world countries. In addition, farm subsidies further harm the economic performance in third-world countries. Currently, these countries mostly have a competitive advantage in farm products export and agricultural production, so it is not hard to figure out that high level of agricultural protectionism in Western Europe discourages the export performance in countries with low level of GDP per capita, as producers and exporters have to pay "higher-than-otherwise" price on the exchange of products which they produce.
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