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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

just try to elucidate
Aadil Reply
just try to elucidate something
Aadil
what
Ashfaq
would you explain
azad
what is elasticity, perfectly elastic, inelastic
Rue Reply
When 01 the demand is elastic
Myriam
when demand curve is horizental the curve is perfectly elastic ...when demand curve is vertical then it is perfectly inelastic
Ashfaq
elasticity means that percentage change in quantity demanded due to percentage change in price
Ashfaq
introduction to elasticity of demand
Dalhatu Reply
what is price commonly called in the labour market
AYUBA Reply
wages?
penn
Explain demand curve
Ibrahim
price in labour market is Marginal Physical Productivity...
azad
what is the price of elasticity of demand
Mahesh Reply
it is the responsiveness of a certain good. and it is calculated as follows: PED=%change in quantity demanded /%change in price
Rue
what is per capita income
Kafwimbi Reply
what is GDP of an economy
Kafwimbi
Gross Domestic Product
grace
Why is scarcity the main problem of economics
Nicholas Reply
Because of unlimited needs and wants demanded by the household
Jeremiah
what is GDP deflator?
saud
Because of endless needs and wants required to achieve maximum satisfaction possible by consumers
Nobert
how to calculate price elasticity demand?
Precious Reply
change in quantity over quantity divided by change in price over price
Pele
Percentage change in quantity demanded over the percentage change in price
Nobert
if the local pizzeria raises the price of a medium pizza from Rd.60to 100 & quantity demanded falls from 700 pizzas a night to 100 pizzas at night , the price elasticity of demand for pizzas is:
Lakshmi Reply
1.2. Measurement of price Elasticity of demand
Lakshmi
0.11
Nobert
Lakshmi tell me how wrong am I coz I see you've got different answer from mine?
Nobert
_1.28
Melvis
explain how price and output are determind by a discriminating monopolist
Hiraj Reply
price and output determined through interaction between demand curve and supply curve...
Ajay
how do I view the graphs
Patricia Reply
how do I open the links
Patricia
what is the markert
Ester Reply
A market is any place where buying and selling can take place.
Landing
20. Why is a football game on ESPN a quasi-public good but a game on the NBC, CBS, or ABC is a public good?
Brigam Reply
how people make decision?
Xafsa Reply
what is supply and demand
Xafsa Reply
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price.
Landing
thank you very much
Xafsa
list and briefly explain the three principles that describe how the economy as whole works?
Xafsa

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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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