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Some workers and firms will suffer because of international trade. In a living, breathing market-oriented economy, some workers and firms will always be experiencing disruptions, for a wide variety of reasons. Corporate management can be better or worse. Workers for a certain firm can be more productive or less. Tough domestic competitors can create just as much disruption as tough foreign competitors. Sometimes a new product is a hit with consumers; sometimes it is a flop. Sometimes a company is blessed by a run of good luck or stricken with a run of bad luck. For some firms, international trade will offer great opportunities for expanding productivity and jobs; for other firms, trade will impose stress and pain. The disruption caused by international trade is not fundamentally different from all the other disruptions caused by the other workings of a market economy.

In other words, the economic analysis of free trade does not rely on a belief that foreign trade is not disruptive or does not pose tradeoffs; indeed, the story of Technotron begins with a particular disruptive market change    —a new technology—that causes real tradeoffs. In thinking about the disruptions of foreign trade, or any of the other possible costs and tradeoffs of foreign trade discussed in this chapter, the best public policy solutions typically do not involve protectionism, but instead involve finding ways for public policy to address the particular issues, while still allowing the benefits of international trade to occur.

What’s the downside of protection?

The domestic flat-panel display industry employed many workers before the ITC imposed the dumping margin tax. Flat-panel displays make up a significant portion of the cost of producing laptop computers—as much as 50%. Therefore, the antidumping tax would substantially increase the cost, and thus the price, of U.S.-manufactured laptops. As a result of the ITC’s decision, Apple moved its domestic manufacturing plant for Macintosh computers to Ireland (where it had an existing plant). Toshiba shut down its U.S. manufacturing plant for laptops. And IBM cancelled plans to open a laptop manufacturing plant in North Carolina, instead deciding to expand production at its plant in Japan. In this case, rather than having the desired effect of protecting U.S. interests and giving domestic manufacturing an advantage over items manufactured elsewhere, it had the unintended effect of driving the manufacturing completely out of the country. Many people lost their jobs and most flat-panel display production now occurs in countries other than the United States.

Key concepts and summary

International trade certainly has income distribution effects. This is hardly surprising. All domestic or international competitive market forces are disruptive. They cause companies and industries to rise and fall. Government has a role to play in cushioning workers against the disruptions of the market. However, just as it would be unwise in the long term to clamp down on new technology and other causes of disruption in domestic markets, it would be unwise to clamp down on foreign trade. In both cases, the disruption brings with it economic benefits.

References

E. Helpman, and O. Itskhoki, “Labour Market Rigidities, Trade and Unemployment,” The Review of Economic Studies , 77. 3 (2010): 1100-1137.

M.J. Melitz, and D. Trefler. “Gains from Trade when Firms Matter.” The Journal of Economic Perspectives , 26.2 (2012): 91-118.

Rauch, J. “Was Mancur Olson Wrong?” The American , February 15, 2013. http://www.american.com/archive/2013/february/was-mancur-olson-wrong.

Office of the United States Trade Representative. “U.S. Trade Representative Froman Announces FY 2014 WTO Tariff-Rate Quota Allocations for Raw Cane Sugar, Refined and Specialty Sugar and Sugar-Containing Products.”Accessed January 6, 2014. http://www.ustr.gov/about-us/press-office/press-releases/2013/september/WTO-trq-for-sugar.

The World Bank. “Merchandise trade (% of GDP).” Accessed January 4, 2014. http://data.worldbank.org/indicator/TG.VAL.TOTL.GD.ZS.

World Trade Organization. 2014. “Annual Report 2014.” Accessed April 1, 2015. https://www.wto.org/english/res_e/booksp_e/anrep_e/anrep14_chap10_e.pdf.

Questions & Answers

explain the relation between short run average cost and short run marginal costs
VICKY Reply
explain the relation between short run average cost and short run marginal cost
VICKY
explain the relation between short run average cost and short run marginal cost
VICKY
explain the relation between short run average cost and short run marginal cost
VICKY
briefly state the reasons for downwards sloping demand curve ?
The Reply
taste and preference
Fabian
if John was given $10, he would spend none of it on tuna fish.But when asked, he claims to be indifferent between receiving $10 worth of tuna and a $ 10 bill.How could this be?
oliva Reply
Autonomous free demand
sadiq
What is illustrates?
Anik Reply
things to do first as a manager when contacted to create a jewelry inventory system
Moses Reply
what is monopoly
Kadar Reply
in monopoly there in only one producer of the product and there in no substitute of that product in the market .The producer is price maker .
Devendra
mono means single and poly means seller. so a single seller controls the entire market of a particular product. He is the price maker..
premkumar
if x decreases and y decreases what slope is it
Elda Reply
what is duopoly
Femi Reply
it's a state where two people control over a market...
Okonkwo
great
jean-renel
why ppf is downward
Ahmad Reply
i didn't understand
Fatima
The PPF is downward because it shows the the unequal opportunity cost ratios existing in the allocation of resources in the production of two major goods/services in a given economy
Elvis
due to opportunity cost.
samson
this is because goods are sacrifice for the production of the other.
Avuwada
Weldon question and good answer . in my opinion when you allocate some more resources for production of one good among two.
Azizullah
any one what is the difference between need and want?
Azizullah
need is neccesory but want is temporary...
hemanth
any idea about green leadership
ghalib
trends in microeconomics
JOSEPH Reply
Worked out examples of calculating the elasticity of supply
Black Reply
briefly describe the term business cycle
Linda Reply
these are the different economic trends observed by an economy at a given time period. we have the slump,recession, recovery and boom
Betole
saran has decided always spend one 4th income on his clothes what is income elasticity of demand in hindi
Saba Reply
income elasticity is 4
Avuwada
what is diminishing returns?
diminishing returns states that as more variable in put is bing employed on a fixed factor marginal product increase attains maximum and falls certeris paribus.
Avuwada
The law of diminishing returns is the a phenomenon that happens when you gain less satisfaction or in another word less marginal utility when you keep on consuming the same thing over and over again. The more you have of something the less desirable it becomes .
sassia
My first post was about the law of diminishing marginal utility, it was meant for another post .
sassia
however to be precise the law of diminishing returns is used to refer to a point at which the level of profits or benefits gained is less than the amount of money or energy invested.
sassia
or you can refer to the text it is mentioned that: "the law of diminishing returns    , which holds that as additional increments of resources are added to a certain purpose, the marginal benefit from those additional increments will decline. "
sassia
Diminishing returns states that when more and more variable inputs are being employed on a fixed input, total product and marginal product increases initially attains maximum and falls (certeris paribus) .
Avuwada
What is monopoly
benzi Reply
nothing
Its when one firm controls the entire market and is the price setter
aaa

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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