ECONOMICS 0115
SUPPLEMENTARY READINGS QUESTIONS-Part 3

01. In Jim Powell's article "Forget the Crowbar":

a. What is the crowbar theory of trade sanctions? What are trade sanctions designed to do?

b. Does historical and current-day evidence indicate that such retaliation is successful?

c. Who benefits from such retaliation? Who is harmed by such retaliation? Explain.

d. Why do trade barriers stimulate nationalism?

e. Why have countries removed barriers to trade?

02. In Brink Lindsey's article "Reciprocity for Disaster":

a. What is the unilateralist position on free trade? Is this consistent with the principles of free trade discussed in class?

b. Some supporters of free trade argue that we should not unilaterally disarm. Explain what the reciprocity approach to free trade is and why this is a mercantilist policy. (Be sure you can explain what a mercantilist policy is.)

c. What is GATT's mission? What loopholes allow signatories to escape the intent of GATT? (What is subtle protectionism?) Why is GATT bound to fail?

d. What problems arise because countries use the reciprocity approach to free-trade? What does Lindsey mean when he says that "advocates of free trade should get off the reciprocity bandwagon."

03. In Brink Lindsey article "Steel: The Other Side of the Story":

a. Why don't we support restrictions on oil imports?

b. Why do we support restrictions on foreign steel?

c. What impacts will restrictions on foreign steel have on some sectors of the US economy?

04. In Robert Hetzel's article "The Free Trade Debate: The Illusion of Security Versus Growth":

a. Why is the US economy being restructured? Explain why this section is important for the rest of Hetzel's argument.

b. Why is the argument "exports are good, imports are bad" incorrect?. How is the idea of protectionism similar to mercantilism?

c. Why does protectionism reduce productivity and economic growth? What examples does Hetzel use in illustrating this point?

d. If the US restricts the imports of LDCs (mainly goods produced by unskilled or semi-skilled labor), what will happen to its high tech industries? Why? Explain.

e. What is the cost of protectionism? Explain several of the examples in Hetzel.

f. Contrast the way governments and free enterprise systems deal with economic change/progress. Which way produces the most economic growth? Explain.

h. Can we have security and economic growth at the same time?

05. In James Kearl's article "Can a High-Wage Economy Compete with Low-Wage Economies?":

a. Does trading with low-wage countries create trade deficits? What does the cheap labor theory predict and what is the evidence?

b. Does the fact that some foreign labor is cheap matter? Explain.

06. In John Nye's article "No Trade, No Gain":

a. What effect do innovations have on our economy? Are these desirable or undesirable effects? Explain.

b. Why would a policy of raising tariffs be undesirable?

c. Is trade protection necessary for development? (Hint: Consider Pat Buchanan's position.)

d. Why did America develop despite its high tariffs rather than because of them?

e. How has protection affected the auto industry in Germany and agriculture in Japan?

07. In Roger LeRoy Miller and Daniel Benjamin’s article “The $750,000 Job”:

a. What do the authors mean by the statement “we pay for imports with exports”?

b. How does a US tariff or quota reduce benefits to US workers? To US consumers? (Use Crandall’s study of auto restrictions in early 1980s)

c. How much has protectionism cost per job in other industries? What effect has such protectionism had on the economy?

d. What have the WTO researchers found when they examined three world-wide industries which used protectionist policies?

08. In Roger LeRoy Miller and Daniel Benjamin’s article “The Trade Revolution in Textiles”:

a. What is the MFA (Multifiber Agreement) and what economic effects did it have on the US and Europe?

b. What effect did the MFA have on developing countries which had a comparative advantage in producing textiles?

c. What did the world trade agreements signed in Uruguay in 1994 do and what effects has it had on various countries?

d. What is quota-hopping? How did it affect textile importers?

e. Among textile exporters who were the gainers and losers from the Uruguay agreement? Briefly explain.

f. Why do the authors describe the change brought about by abolishing the MFA in 1994 as similar to “falling off a cliff”?

09. In Fargo's article, "Thank the Japanese for Our Trade Deficit":

a. Explain how the US trade deficit affects our economy.

b. Explain the significance of trade surpluses and trade deficits when three way trade occurs.

c. Do trade deficits make the US "uncompetitive"? What causes "uncompetitiveness"?

d. Why do foreigners wish to invest in the US?

10. In Steve Hanke and Alan Walters' article "Easy Money":

a. What happens when a currency is pegged at a disequilibrium exchange rate?

b. What limits the government's ability to intervene in foreign currency markets?

c. How did Mr. Soros make a "killing" speculating against the pound sterling?

d. What is informal pegging? Why does informal pegging occur? What opportunities does this offer to speculators?

11. In Steve Hanke and Alan Walters' article "The Wobbly Peso":

a. What does pegging the peso to the dollar mean and why is the peso overvalued?

b. Why should holders of peso bonds sell them and purchase dollar-denominated bonds?

c. Why have interest rates risen in Mexico?