Transcript IIT Activities 2014

http://www.fte.org/teacher-programs/one-day-programs/workshop-powerpoints/
Table of Contents
INTRODUCTION
THE BASICS OF TRADE

LESSON 1: THE BASICS STILL APPLY: DOMESTIC OR
INTERNATIONAL, A MARKET IS A MARKET

Addendum: Overview of U.S. Involvement in International Trade

Activity: The Magic of Markets

Activity: Tag Check

LESSON 2: BRIDGES AND BARRIERS TO TRADE

Activity: The Euro: Currency Exchange and Transaction Costs

Activity: U.S. Sugar Policy – A Sweet Deal?
Table of Contents
TRADE ISSUES



LESSON 3: TRADE AND LABOR: SWEATSHOPS

Activity: Standing Up for Sweatshops?
LESSON 4: TRADE AND JOBS

Activity: The “Giant Sucking Sound” – Job Woes or Labor Flows?
LESSON 5: TRADE AND THE ENVIRONMENT

Activity: Trash
THE MECHANICS OF TRADE

LESSON 6: THE BALANCE OF PAYMENTS ALWAYS BALANCES

Activity: Balance of Trade Among States

LESSON 7: INTERNATIONAL MONETARY EXCHANGE

Activity: Foreign Currency and Foreign Exchange
RESOURCE LIST
http://learnliberty.org/videos/why-do-we-exchange-things
Classroom Activity:
“The Shopping Game”
To Convert Pinks, Blues, and
Yellows
For
For
For
5 Yellows,
2 Blues,
1 Pink,
You Can Buy You Can Buy You Can Buy
2
Blue
1
Pink
5
1
5
2
Yellow Pink Yellow Blue
Conversion Table
For
For
For
5 Yellows,
2 Blues,
1 Pink,
You Can Buy You Can Buy You Can Buy
3€
2
Blue
3€
1
Pink
3€
5
1
5
2
Yellow Pink Yellow Blue
Classroom Activity:
The “Giant Sucking Sound”
Checklist:



The demand for labor is derived demand.
Market prices of products and labor shape employers’ hiring
decisions.
 labor is a cost of production
 profit = price – cost
Hiring decisions are made at the margin.


“What is your marginal revenue product?”
Wages are a function of productivity.
 labor productivity = output per man-hour
Productivity

Labor productivity is determined by a number of factors,
some under control of the worker himself and some the result
of the conditions of employment.
 the worker's physical abilities;
 the worker's level of education;
 the type and amount of equipment (capital) available;
 including infrastructure
 other factors and conditions specific to the job location
 regulations
 unions

Adding workers affects productivity at the margin


specialization increases productivity
diminishing marginal returns = reduction in
productivity
1 Kitchen - How Many Cooks?
#
cooks
#pizzas
made
# additional
pizzas from
hiring this
cook?
What happened?
0
0
0
1
10
10
Good cook – does everything himself
2
15
1 baker, 1 prep and waiter
3
25
45
4
55
20
10
5
55
0
6
40
-15
No Cook – No Pizza !
1 baker+1 prep+1 waiter – what a system!
Extra guy – helps who ever is behind
Things aren’t so hectic
Get her out of the way !
Scenario


In college, Maria and Mario started a t-shirt
business out of their parents' garage. Now
they've graduated, and would like to expand the
business and become the bosses instead of the
"do-everything" people.
They've made a list of the different tasks involved
in the business - most of which they now do
themselves. They figure there are 2 kinds of tasks
in the t-shirt business:
Unskilled or low-skill
Skilled
•
Taking orders
Cutting Patterns
Sewing
Printing
Labeling
Packing
Delivery
Bookkeeping
Marketing
T-shirt Design
Advertising
Shipping & Ordering
Mario & Maria’s dilemma


Every person they hire means one less
thing they have to do themselves - and they
can choose to do the things they enjoy most
- like the design and marketing, for
example.
The question is how many people to hire.
Output, Additional (Marginal) Product, and Additional (Marginal)
Revenue
$10
T-shirt price (P) = $_________
YELLOW CARD WORKERS
#
Hired
T shirts
Made
Added
Product
(MP)
1st
5
5
2nd
8
3
3rd
10
2
4th
11
1
5th
12
1
6th
12
0
PINK CARD WORKERS
P xMP
#
Hired
T shirts
Made
Added
Product
(MP)
P x MP
$50
1st
8
8
$80
2nd
14
6
$60
3rd
19
5
$50
4th
22
3
$10
5th
24
2
$0
6th
25
1
$30
$20
$10
$30
$20
$10
Round #2 – Wages Paid
Yellow Card
Round #2 – Profit Calculation
# t-shirts produced
(pink+yellow)
Pink Card
Worker
Wage
Worker
Wage
Hired
Paid
Hired
Paid
1st
1st
2nd
2nd
3rd
3rd
4th
4th
5th
5th
6th
6th
(from
chart)
X Price of t-shirts X $ 10
=$
= TOTAL REVENUE
—$
— TOTAL COST
= PROFIT Round $
#2
Sub-total
+Sub-total
=
Total
cost
Part 2: Make It Work Circles
Composition:
 Create discussion groups: go to your last employer
 All roles represented
Problem:
 Market growth
 Difficulty hiring yellow-card workers
Apparel Sourcing, Cutting, Sewing, Distribution
"A Relationship of Trust and Profitability"
The North America Free Trade Agreement has opened new opportunities for
trade in the apparel industry between Mexico and the United States.
Peñyasa was incorporated in 1997 as a garment manufacturing company to
service the U.S. market.
Peñyasa's cutting and sewing plant is a world class facility with an output
capacity of 60,000 dozens per month with 450 operators.
Peñyasa's management team is a blend of experienced professionals from
different fields that fully understand the concept of global sourcing.
Our labor costs are low - average 50% - 75% below comparable US rates. Work
quality is high. We guarantee to cut your costs by 30-50%!
Sourcing with Peñyasa will significantly reduce costs and add value to your entire
operation, allowing you to concentrate on sales, marketing, and management.
Who?
Employer
Helped or hurt by
"exporting"
unskilled jobs
to Mexico?
helped
US Skilled
worker
helped
t-shirt
consumer
helped
Mexican
unskilled
worker
US Unskilled
worker
helped
Short run – hurt
Long run - ???
How?
Lower production cost means better able to
compete and more profit
As company grows, more skilled positions
available. More profit = higher incomes for
workers
Lower t-shirt prices
More opportunities for employment and
income – and accumulation of skills, too
Unskilled worker may lose job, but more jobs
because of growth. Worker needs education
and training to take advantage of growth
The Economist, special report:
“Here, There, and Everywhere” January 19, 2013
Outsourcing, Offshoring, and Re-shoring
Comparative Advantage is Dynamic
Re-shoring
Career Education Questions: College or Training?
NAFTA at 20
http://www.economist.com/news/briefing/21592631-two-decades-ago-north-american-free-trade-agreement-gotflying-start-then-it
Mixed Results: “Did NAFTA Help Mexico?”
Center for Economic & Policy Research, February, 2014
http://www.cepr.net/documents/nafta-20-years-2014-02.pdf
“Table 1 shows Mexico’s annual per
capita GDP growth rate compared to
the rest of Latin America (South
America and Central America).
Mexico’s growth ranks 18th of 20
countries. From these numbers, and
in the absence of any natural disaster
or war in Mexico during the past 20
years that could account for such
poor economic performance, it would
be difficult to argue that Mexico would
have done even worse in the absence
of NAFTA.”
Mexico ranks 18th of 20 Latin
American countries in growth of real
GDP per person, the
most basic economic measure of living
standards.
From 1960-1980, Mexican real GDP
per person almost doubled, growing by
98.7 percent.
By comparison, in the past 20 years it
has grown by just 18.6 percent.
Mexico’s per capita GDP growth of
just 18.6 percent over the past 20
years is about half of
the rate of growth achieved by the rest
of Latin America.
If NAFTA had been successful in
restoring Mexico’s pre-1980 growth
rate – when
developmentalist economic policies
were the norm – Mexico today would
be a relatively
high income country, with income per
person significantly higher than that of
Portugal or
Greece. It is unlikely that immigration
reform would be a major political issue
in the United
States, since relatively few Mexicans
would seek to cross the border.
“NAFTA also increasingly tied Mexico to the U.S. economy. Figure 11 shows how the Mexican economy has
moved with the U.S. economy over the past 20 years. Much of this synchronization is because 71 percent of
Mexico’s exports now go to the United States. Unfortunately, 1994 was a particularly bad time for Mexico to
hitch its wagon to the United States. First came the peso crisis, which was brought on by the U.S. Federal
Reserve’s increases in U.S. short-term (policy) rates beginning in 1994. Mexico lost 9.5 percent of GDP in two
quarters during the resulting crisis and recession, which started in December of 1994 and continued into the
first half of 1995.”
. . . Perhaps more importantly over the longer run, the U.S. economy was just beginning a
period in which its growth would be driven by enormous asset bubbles. . . . Mexico’s loss
of output from the U.S. Great Recession was the worst in Latin America . . . “
“It is also worth examining where Mexico would be today if its income per person had
continued to grow at the rate that it did over the two decades prior to 1980. This is shown
in Figure 3. This result was not impossible, as can be seen by the comparison with South
Korea, which grew at a similar rate as did Mexico (although from a lower starting point)
from 1960-1980, and did not suffer from Mexico’s growth collapse thereafter. “
“NAFTA at 20: Misleading Charges and Positive Achievements”
Peterson Institute for International Economics, May 2014
http://www.iie.com/publications/pb/pb14-13.pdf
NAFTA fostered a growing US trade deficit.
• Short response: Not perceptible.
Trade with Mexico raised US unemployment.
• Short response: Not perceptible.
Job loss depressed US wages, especially in manufacturing.
• Short response: In some cases, but not across the board. The boom
in US agricultural exports turned rural Mexicans into illegal
emigrants.
• Short response: No connection.
Apart from agriculture, NAFTA abetted illegal immigration.
• Short response: The opposite.
• Mexican growth has not achieved the rate anticipated by NAFTA
proponents.
• Short response: A fair criticism.
Recent Studies of NAFTA:
NAFTA at 20: Misleading Charges and Positive Achievements
Peterson Institute for International Economics, May 2014
http://www.iie.com/publications/pb/pb14-13.pdf
International Trade Statistics Overview 2013 – World Trade Organization
http://www.wto.org/english/res_e/statis_e/its2013_e/its2013_e.pdf
“Did NAFTA Help Mexico?”
CEPR – Center for Economic and Policy Research, February, 2014
http://www.cepr.net/documents/nafta-20-years-2014-02.pdf