International trade significantly impacts labor markets by driving structural change and productivity, affecting employment, income, and other labor market outcomes. In the developing world, services account for a rising share of domestic employment and international trade. The effect of exports and offshoring on wages varies across worker subcategories, with the average hourly wage of blue-collar workers ranging from 12 euros for the least intensive exporters to more than 14 euros for more intensive exporters.
This paper examines the effects of international trade on US productivity, arguing that trade can affect domestic productivity through economies-of-scale effects. New research indicates that easing barriers to international trade and foreign direct investment (FDI) could boost productivity and output. Efforts to lower trade barriers have been stalling, but a push towards stronger government commitment to labor standards is proving to be effective.
Trade raises the amount an economy can produce by allowing firms and workers to play to their comparative advantage. However, growth in labour productivity and global trade has lost momentum since the late 1990s. Import shocks trigger a decline in wages, primarily observed outside the manufacturing sector. Trade thus increases the relative supply of each country’s scarce labor, decreasing its price (that is, wages), and decreasing its relative supply of less-educated workers.
In conclusion, international trade has a significant impact on labor markets, driving structural change and improving productivity. However, it also poses risks to less-educated workers as imports reduce demand for their labor.
📹 International Trade Explained | World101
Trade determines what you can buy and where you can work. It can affect hormone levels in a supermarket chicken, the pictures …
What are 5 benefits of international trade?
International trade offers numerous benefits, including increased revenues, reduced competition, longer product lifespan, easier cash-flow management, better risk management, currency exchange benefits, access to export financing, and disposal of surplus goods. It helps countries expand their markets globally by providing access to goods and services that may be unavailable or more expensive in other countries.
Depending on a company’s stage and scale, international trade may be worth considering for business expansion. It also provides access to currency exchange, export financing, and disposal of surplus goods.
How does international trade benefit American workers?
International trade offers numerous benefits for Americans, including lower costs, increased consumer variety, and support for workers who export or rely on imports. It also fuels innovation, competition, and economic growth, and strengthens international partnerships for global policy issues. However, trade also poses risks. The US, with its large capital and highly educated workforce, specializes in products that use these resources intensively, exporting complex products like software and airplanes.
However, imports reduce demand for less-educated labor, as countries with lower wages can make labor-intensive products more competitively. As a result, international trade has harmed many US workers by lowering demand for their labor. Studies show that increased imports, particularly from China, displaced over 1 million US workers in the early 2000s. While there is no evidence that trade agreements like NAFTA caused such displacement, many workers are skeptical of trade agreements due to their association with poor labor market outcomes.
How does globalization affect the labor industry?
Opponents of free trade argue that it has equalizing effects across countries, rather than redistributing effects within countries. For instance, those against the North American Free Trade Agreement worry that import competition will force wages for unskilled workers in the United States down to the level of Mexican wages. The idea is that each country exports its labor services and imports the services of scarce labor, leading to a convergence of labor costs across countries.
In principle, NAFTA might lower wages in low-skilled-labor-scarce countries and raise wages in low-skilled-labor-abundant countries until the same wage structure prevails. However, this theoretical possibility is subject to restrictive assumptions, such as identical consumer tastes and production technologies, perfect labor mobility across industries, and production of the same mix of goods across all countries.
Capital flows that change a country’s stock of capital relative to labor potentially affect the relative price of labor. The volume of capital flows across borders has increased rapidly since about 1970, growing at a rate much higher than international trade in products.
How does international trade affect production?
Global trade enables wealthy countries to use their resources more efficiently, allowing them to produce goods more quickly and at a lower cost. This leads to specialization, where a country can obtain goods by trading with another country that can. Comparative advantage, as illustrated by England and Portugal in Adam Smith’s “The Wealth of Nations”, illustrates how countries can mutually benefit by specializing and trading according to their own comparative advantages. For example, Portugal can produce wine at a low cost due to its abundant vineyards, while England can manufacture cloth more cheaply due to its sheep-rich pastures.
What are the effects of international trade?
Net exports play a crucial role in determining the slope and position of the aggregate demand curve. A change in price levels leads to a change in net exports, which in turn moves the economy along its aggregate demand curve. Other determinants of net exports, such as incomes and price levels in other nations, exchange rates, trade policies, preferences, and technology, also affect net exports. The magnitude of this shift is equal to the change in net exports times the multiplier, as shown in Figure 15.
3. In both cases, the aggregate demand curve shifts by the multiplier times the initial change in net exports, provided no other changes in other components of aggregate demand. In Panel (a), an increase in net exports shifts the aggregate demand curve to the right by the multiplier times the initial change in net exports, while in Panel (b), an equal reduction shifts the aggregate demand curve to the left.
Do workers benefit from international trade?
International trade offers numerous benefits for Americans, including lower costs, increased consumer variety, and support for workers who export or rely on imports. It also fuels innovation, competition, and economic growth, and strengthens international partnerships for global policy issues. However, trade also poses risks. The US, with its large capital and highly educated workforce, specializes in products that use these resources intensively, exporting complex products like software and airplanes.
However, imports reduce demand for less-educated labor, as countries with lower wages can make labor-intensive products more competitively. As a result, international trade has harmed many US workers by lowering demand for their labor. Studies show that increased imports, particularly from China, displaced over 1 million US workers in the early 2000s. While there is no evidence that trade agreements like NAFTA caused such displacement, many workers are skeptical of trade agreements due to their association with poor labor market outcomes.
How does international trade increase productivity?
The intensifying competition from imported products has prompted firms to invest in technological enhancements, while a broader array of intermediate production inputs may potentially reduce input costs.
What are the 5 benefits of international trade?
International trade offers numerous benefits, including increased revenues, reduced competition, longer product lifespan, easier cash-flow management, better risk management, currency exchange benefits, access to export financing, and disposal of surplus goods. It helps countries expand their markets globally by providing access to goods and services that may be unavailable or more expensive in other countries.
Depending on a company’s stage and scale, international trade may be worth considering for business expansion. It also provides access to currency exchange, export financing, and disposal of surplus goods.
What impact does international trade have on production possibilities?
Free international trade allows countries to access more goods beyond their domestic production possibilities, leading to increased total output and global production possibilities. However, it does not benefit everyone, as some workers and owners of other production factors may be negatively affected. Contrary to the model of specialization based on comparative advantage, not all trade is one-way, as two-way trade in the same goods can arise from variations in transportation costs and seasonal influences, often due to imperfect competition.
This is common in high-income countries. Trade barriers like tariffs, antidumping proceedings, quotas, or voluntary export restrictions can raise the equilibrium price and reduce the quantity of restricted goods. Economists generally oppose protectionist measures and support free trade.
Who benefits and who loses from international trade?
Trade between countries can benefit societies as a whole, but not every individual or company benefits. When a firm buys a cheaper foreign product, it benefits the buyer, while the home producer loses a sale. The world generally benefits when countries import products produced more efficiently and cheaply abroad, except if the foreign costs do not include social costs like pollution.
Those who feel adversely affected by foreign competition have long opposed international trade. British historian Thomas B. Macaulay observed the practical problems governments face in deciding whether to embrace free trade, stating that it is unpopular in almost every country. Ricardo observed that trade is driven by comparative costs, meaning a country can benefit from trading according to its comparative advantage, exporting products with its greatest absolute advantage and importing those with a comparatively less advantage.
How does international trade affect labor?
Trade can increase overall wage levels, but it can also benefit some workers and hurt others. Workers in industries with competition from imported products may experience decreased demand for their labor, leading to a decline in wages. Conversely, workers in industries that benefit from global markets may see increased demand for their labor, leading to a rise in wages.
Globalization may benefit high-skilled workers in the United States by increasing sales of sophisticated products, while low-skilled workers must compete with extremely low-wage workers worldwide for simpler products. This may result in a fall in wages for low-skilled workers.
However, globalization has not focused its negative impact on low-skilled Americans. About half of U. S. trade is intra-industry trade, meaning the U. S. trades similar goods with other high-wage economies. For example, in 2014, the U. S. exported over 2 million cars from major automakers and imported several million cars from other countries.
📹 Free Trade vs. Protectionism
More trade tends to lead to more prosperity for a society. So everyone should favor completely free international trade, right?
There should be no debate of Free Trade vs Protectionism. It’s actually really simple: Free market and protectionism are merely instruments to be used at different stages of industrial development. When your important industries are small, you protect them; that’s how the world powers have achieved economic welfare: With hard protectionism of key industries at the beginning or whenever is necessary (if the Chinese become clearly more efficient, for example, in the case of the US). And when your industry is strong, you peddle the free market as the key to your success to anyone naive or ignorant enough to believe it, so they open their borders for your industry to devour theirs, thereby letting them forever stuck in the 3rd world. In any case, uncontrolled capitalism tends to reward being first in exploiting the initial lack of regulation (by scamming, underdelivering, and putting the worker and the consumer at risk, etc.), and since they got more opportunities to get more money in unethical ways, they end up with more money they can re-invest to acquire more capital. The above means that capitalism tends to form one oligopoly per industry, and when an oligopoly arises, it can: – Uphold ridiculous patents that stifle innovation. – Lobby for increased domestic regulation so other companies can’t reach them. – Lobby for increased fines that they can cushion but would otherwise destroy startups. – Bribe authorities and mainstream media to invert reality when they put the environment, their workers or the consumer at risk.
I don’t think free trade can work unless every country does it. Like, if a US company is competing with a Chinese company, but the Chinese government bolsters the company based it it’s borders, that company has a major advantage in the market. Also, is it ‘free trade’ if the government is a customer of a company? If the US only buys chips from Intel, then Intel has a HUGE market advantage. Unless the government produces all materials in-house, using proprietary manufacturing, they’ll always be handing someone a leg up, to mix my limb-based metaphors.
Professor Dave does a good job of explaining, but I think there are key omissions. One effect of trade is often a race to the bottom as companies compete on price – this generally means a progressive decrease in quality — and the consumer isn’t the winner. Another major flaw is is how ecomonic health (or ‘progress’) is measured. GDP is a really bad metric and absolutely should not be used. It’s one good point is that it’s a single number and when it’s high, it’s ‘good’ and when it’s low, that’s ‘bad’, but it includes things that aren’t measures of a healthy society and excludes many things that are – and it is insensitive to whether an economy is sustainable – so is entirely misleading and it’s getting us into trouble. I’m not against wealth creation, and I believe in rewarding hard work, originality, creativity and excellence. My issue is with the use of GDP as a metric for success. I don’t have the answer, I’m just staring at the problem.
Free traders miss the point that competitive advantages are often made on the expense of harming people (e.g. through lower labour standards) or exploit shared ressources as the climate or other environmental ressources. Thus, it is reasonable to create markets that disadvantage products with higher exploitation quotas and pay higher prices for products as there come less externalised costs with them.
Hiiiii I am using this website to prepare for algebra 1 and perusal your old flat earth articles I love how you explain things well across so many topics you clearly do research Also i have never been so early to any article ever, not even just your website. Just ever. I know it’s kinda cringey to be like, “i’m early” but i’m happy about it (excuse my bad typing idk why but i just can’t bring myself to type well today)
The problem I have with free trade is one you already mentioned, the example with the shirts. The big problem I see with all of this is the fact that there isn’t a set currency of the world. Each country has their own currency with their own worth in comparison to other currencies. Now someone living in a country where 1 of their type of currency is worth lets say 0.001$ earns ~1000 of that currency in a month, which would equal 1$ in the US. In their country, this money would be enough for a low average living standard, yet in the US 1$ isn’t enough. Now this worker produces ~250 Shirts a month lets say just for good measure, which means 250 Shirts are worth ~1000 foreign currency in labor plus some 500 foreign currency in material cost. Perhaps I am simplifying to much here, but now calculate the value of one shirt: 1 Shirt is worth 6 foreign currency, meaning 0.006$. Now we want to sell this in the US. Let’s say you sell one of these Shirts for 5$ in the US from which you gain 2$ profit, than one shirt already generates 333.33…x the amount its worth, which is a huge profit margin (If that even is a profit margin I am talking from my current understanding of all of this which is not much). No firm in the USA could produce such margins without astronomical prices or worker abuse, so the most efficient and profitable way for a US Shirt maker is to produce in said country where the work is cheap, thus weakening the domestic shirt production. If all US Shirt makers think that way, which they might considering they would make a huge amount of money in the process, the domestic shirt production would cease to exist.
There is a basic argument that is not discussed and that is fundamentally that free markets don’t exist. The WTO is a fundamentally flawed organization that perpetuated the disparities of GATT. There is also the overlooked wording in the phrases used including the term “generally” . I find that when you use Economics 101 to write a script, you reduce the value of a discussion. PS I am a great supporter of the website in general but this kind of “Free Trade” argument creates a utopian idea that exists only in a theory. Love your work in general though, keep doing it.
I dispute that free trade increases your standard of living. Quality may go up. prices will go down. but you will earn less money too!!! remember earlier in the article where protectionism made sure domestic workers kept their jobs? yea, without that, your employer went bankrupt, you got fired and forced to accept a lower-paying job. but hey, stuff costs a little less now… your standard of living going up is predicated on the assumption your wage stays the same which it won’t, it’s likely to go down. I am not arguing for protectionism, I’m just pointing out that the situation is far more complex than the article lets on.
I have no problem with free trade and agree with what you have said. However, free trade only really works well if everyone is playing by the same rules. So, if the US has a minimum wage of say $7/hr and a foreign company does not have such a regulation, it is a reverse protectionism that allows the foreign worker to earn less to get us cheaper goods. A “fair trade” would be to look at key metrics (cost of doing business in one’s country) and compare that to the exporting country and ensure that one’s own country is not penalized for being force to adhere to higher standards. People/countries should compete on efficiency/productivity/quality not on who can, effectively, have slave labor producing the cheapest products.
The massive problem you left out of “free trade” is how it allows for foreign actors to control our government. Because we allow legal bribery (lobbying), it sees nations like China or Saudi Arabia, to spend massive amounts on our government to ignore human rights violations in order to secure better trade deals.
As a grad in political economy, an MA grad in IR, and an MA grad in Strategic Studies, I’m not flexing, but I have skin in this debate. I feel you are missing a big geopolitical dimension here by invoking Ricardo style liberalism on free trade. This is not unusual, economists always side step politics. But a free trade world requires a broad consensus and the world is becoming increasingly fractious. FTAs aren’t free trade agreements at all anyway (a misnomer for privileged access agreements), and our liberalism on trade has rendered us profoundly susceptible to supply chain snarls due to JIT delivery or international tension. This is also why Bidenomics is subsidising US chip manufacturing and AI dev lest China steal the march. Some techs are too critical to willingly cede their manufacture to potential rivals. Also, free trade doesn’t always promote peace and international bonhomie. An earlier period of flourishing global trade preceded WWI. Not to mention, Marxist-Leninists argue free trade erodes hard-won workers’ rights by outsourcing cheap labour. I’m no Leninist, but I do think he had a point on this.
Not true, you do not get cheaper goods from globalization. You do hypothetically because a low wage worker in another company can produce it cheaper, but that competition reduces your wages, and the product would be cheaper but the government will react to that by devaluing the currency tk hit the 2-3% inflation target. If you are a working class person, you really only lose from globalization. To go a step further, the wealthy business owners from other countries will then come live in your country which raises asset prices like stocks and property which hurts the working class. The only part where globalization is good is because your country’s rich, become richer than other countries and that gives an advantage in strategic industries
I believe a some very very very little protectionism is necessary and saying in% would be 95% free trade 5% protectionism. Food,water,air, fuel and weapons. And protectionism should be just looked similar to government necessary evil have to kept small at all time. I don’t like protectionism but People like are in very minority thats why I know we have to compromise. Because these majority people see through bs of socialism and protectionism and other bs of politicians only when nation is hit rock bottom and bounce back is very hard and sometimes impossible.
5:30 – Saying that the UK’s own citizens voted to leave the EU is a very strong statement compared to what actually happened. It won by a slim majority after a widespread and well-funded campaign (consisting primarily of lies), when it should have required a much larger majority for such a drastic move.
I am surprised that there are people thinking that this is propaganda when the article does not even give you a direct message of which is better, it is true that it leans towards the free market but it is simply because it is the most efficient way to market, for a reason the countries completely secluded can be counted on the palm of the fingers, while the vast majority decides to open up to the free market on their own, it is a fact that a more liberal economic model is more efficient, only ridiculously large countries could close their market without losing of some essential products You can’t say that everything that is against your opinion is propaganda when your opinion is literally: “2+2=5”
I think you might need to research and understand Brexit better, because the UK voted to leave because of the EU trade law being anti free trade. Since leaving the UK has secured not only new trade deals, but also new security deals both increasing trade and GDP. Not to mention the UK is now going to become a member of the CPTPP which has the fastest growing economies on earth in it. To put this into perspective; the EUs share of global GDP has more than halfed since 1980, and is set to continue this rate towards 2050. Meanwhile, the CPTPP is set to have the majority of the worlds middle class in it by 2050. Since France largely blocks any new trade deals for the EU which may upset their population, the EU is stagnant. Sorry to say but your understanding is flawed and mixed up. The UK supports free trade, after all we did invent the modern concept of it.
You forgot to mention three of the biggest criticisms of free trade: it undermines labour rights, it’s undemocratic, and it is destructive to the environment. Those are three of the biggest ctiticisms. As an educator, you have a responsibility to be more balanced so that students are able to make up their own minds instead of being pushed in one direction with bias.
There is also a 3rd option, which I would call anti-protectionism. It is not regular free trade, as you have quotas and other limitations on domestic companies, pumping their prices, and tax reliefs or exemptions for foreign companies. We’ve got this ‘unique’ model invented in Poland, works so well that millions of people left the country since 2005. By the way, protecting infant industries seems to not work that well after all – it did not work in Brazil between 1971-1990, the outcomes were mostly opposite than anticipated.