19. International Trade: Welfare and Policy | Summary and Q&A

TL;DR

International trade brings economic gains through specialization and comparative advantage, but the lack of compensation for losers and concerns about social and environmental impacts have led to opposition. Tariffs as a tool of foreign policy can have unintended consequences and may not address the root issues, requiring a coordinated approach.

Key Insights

• 🉐 International trade leads to economic gains through specialization and comparative advantage.
• ™️ Lack of compensation for losers of trade leads to opposition to free trade.
• 🪡 Social and environmental impacts of trade can be a concern that needs to be addressed.
• 🫚 Tariffs as a tool of foreign policy can have unintended consequences and are not always effective in addressing the root issues.

Transcript

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Questions & Answers

Q: What are the key benefits of international trade?

International trade allows countries to specialize and benefit from producing what they are best at, resulting in economic gains and lower prices for consumers.

Q: What are the two sources of comparative advantage?

The two sources of comparative advantage are factor endowments, such as natural resources or cheap labor, and technology advancements that create a first-mover advantage.

Q: Why do some countries oppose free trade?

Some countries oppose free trade due to concerns about job losses, lack of compensation for losers, socially damaging practices in other countries, and the use of trade policy as a tool of foreign policy.

Q: How do tariffs affect consumer and producer surplus?

Tariffs raise prices for consumers, resulting in a decrease in consumer surplus. However, they also provide higher prices for domestic producers, increasing producer surplus, but the net loss in consumer surplus usually outweighs the gains for producers.

Summary & Key Takeaways

• International trade brings gains through specialization and comparative advantage, allowing countries to benefit from producing what they are best at.

• Factor endowments and technology are sources of comparative advantage, but socially damaging practices can lead to concerns about the welfare of workers and the environment.

• Opposition to free trade arises from the lack of compensation for losers, blurry lines of what constitutes an import or export, and the use of trade policy as a tool of foreign policy.