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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

Discuss the following questions in detail. 1, Suppose a firm operating under a perfectly competitve market structure is in its equilibrium. Does mean the firm is making excess profit?if no, show the possibilities regarding the amount of profit under equilibrium position. 2, Discuss the distinction b
Sura Reply
in long run a perfectly competitive firm is making only normal profits ,
Rather
Can I be part of this discussion?
James
of course
Rather
what is microeconomics
Jnana Reply
Workout. Show the steps clearly. 1, Suppose a firm in a perfectly competitive market structure has the following total cost function, ( TC=6000+4Q-24Q the power 2 + 4Q the power 3 ) if market ptice is 40, find A, Equilibrium level of output produced by the firm in order to maximize its profit. B,
Sura Reply
Discuss the following questions in detail. 1, Suppose a firm operating under a perfectly competitve market structure is in its equilibrium. Does mean the firm is making excess profit?if no, show the possibilities regarding the amount of profit under equilibrium position. 2, Discuss the distinction b
Sura
given the dimand equation QD=24-2p find the inverse dimand equation ?
Kadir Reply
shift in demand curve
Adeoye Reply
Hi Adeoye
Oluyemi
nice to meet with you
Tanbir
hello...
Ajay
why in monopolistic competition the demand curve shifts to the left
Wani Reply
Because the players are few and due to the fact that their products are differentiated, they have market influence on either price to be charged or quantity to be offered to the market
Diyaolu
given Tc=10 +6Q-0,9Q2+0,05Q3 what is Tvc ? ATc ? mc?
Kadir Reply
Tvc=6q-0.9q2+0.05q3
Diyaolu
Atc=10/q-0.9q+0.05q2
Diyaolu
Mc=6-1.8q+0.15q2
Diyaolu
why demand curve shifts to left in long run
Wani Reply
because in long run when the demand of product is more so price will be more and due to increase in price of quantity demanded will be less and demand curve will shift left gradually
Iqra
Shift in demand curve is caused by a number of factors like taste, fashion, population amongst others and depending on whether the factors are positive or negative, that would determine the shift of the demand curve whether left or right and not whether short run or long run
Diyaolu
what is focus of microeconomics
Ebisa Reply
Why we do specialize?
Wai Reply
it coz of getting more outcome by injecting less time with the help of knowledge and skills along with less amount of mistakes
Sahibzada
specialization is a method of production wheraby an entity focuses on the production of a limited scope good to gain in a degree of efficiency
Mahmood
what is market structure
Mahmood
what is market structure
Rehab
what is monopolystic
Girma Reply
type of goods and services
Nesar Reply
There are two types of goods which are capital and consumer goods
Muafue
what is microeconomics
Mahmood
micro-economics is the study of how firms and households make decisions and how they interact
Saadaq
discuss separately how scarcity arises for house holds, business and government
Hawa
who gave the concept of perfect competition in economics?
Sandeep Reply
 Léon Walras gave the first definition of perfect competition   
ADITYA
no, it was me😂
Nancy
What is Indifference curve?
Ch
Perfect competition is an idealized market structure that achieves an efficient allocation of resources.
Daauud
what are the conditions for determining the nature of goods in partial differentiation
Unique
what is economics
Arman Reply
is a science which study human behaviour as relationship between ends and scarce means hav altenative uses
Herieth
what are the other factors of demand
Aysher Reply
what are other factors in demand
Aysher

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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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