Historical Benefits of Trade

Interview with Dr. Douglas A. Irwin on the historical benefits of trade

Minute 1’53s: What’s wrong with the view that trade is a zero-sum game.

Minute 4’50s: A review of the concept of comparative advantage by using the textile and apparel industry as an example.

Minute 7’30s: What is trade protectionism?

Minute 9’02s: Why did the United States brace the idea of free trade after WWII and push forward the establishment of the multilateral trading system GATT?

Minute 10’30s: what drives the U.S. trade deficit from the economic perspective?

Minute 15’57s: international trade and U.S. apparel manufacturing jobs

Examine the US-China Tariff War from a Theoretical Perspective: Discussion Questions from Students in FASH455

#1 In class, we discussed that trade always creates both winners and losers. So who are the winners and losers in the US-China tariff war? Also, why should or should not the government use trade policy to pick up winners and losers in international trade?

#2 Why do you think U.S. fashion brands and retailers oppose Section 301 tariffs on apparel imports from China, whereas the National Council of Textile Organizations (NCTO), which represents the US textile industry, supports Trump’s tariff action?

#3 The U.S.-China tariff war continues during the pandemic, resulting in higher sourcing costs for U.S. fashion brands and retailers, which have been struggling hard financially. In such a case, if you were the CEO of Macy’s, why or why not would you pass the tariff burden to consumers, i.e., ask consumers to pay a higher price?

#4 Why or why not do you agree with the Trump Administration to lift the Section 301 tariffs on PPE imports from China? Isn’t a high tariff typically protects the domestic industry and would incentivize more U.S.-based PPE production?

#5 Most classic trade theories (such as the comparative advantage trade theory and the factor proportion trade theory) advocate free trade with no government interventions. However, international trade in the real world has been so heavily influenced by government policy, such as tariffs. How to explain this phenomenon? Are trade theories wrong, or is the government wrong?

[Anyone is welcome to join the online discussion. For students in FASH455, please address at least two questions in your comment. Please also mention the question number in your comment]

Trade War Looms over New York Fashion Week

Discussion questions:

  • Why does the U.S. textile industry call for additional tariffs on textile and apparel imports from China whereas U.S. fashion brands and apparel retailers oppose the tariffs?
  • Based on the trade theories we have learned so far, why or why not would you recommend President Trump to impose 25% punitive tariffs on imports from China?

Appendix: Comments on the Proposed Section 301 Tariffs on Imports from China (August 2018)

For the complete timeline of the U.S. Section 301 tariff action against China, please click HERE

Is It Necessary to Cut Trade Deficit and Achieve Trade Balance?

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While the Trump Administration is seeking to reduce the U.S. trade deficit and achieve a more “balanced trade” with its trading partners, a newly-released World Economic Forum (WEC) paper questions the necessity and economic rationale of doing so. As argued by the paper:

First, a country’s trade balance is NOT a measurement of its international commercial success. Neither is the case that “imports are bad and exports are good. “Instead, the paper says that “it is more accurate to think of imports as the benefits of trade, and exports as the cost that needs to be paid to obtain these benefits.”

Second, it is a misconception that “trade deficits cause a reduction in employment and production and trade surplus increase them.” Rather, imports could  increase because of an increase in domestic income thereby increasing the aggregate demand. Empirical studies also overwhelmingly find that rapid economic growth and larger trade deficit are associated with faster employment growth in the United States in history (see the graphs above).

Third, as the supply chain goes global, a tax on imported inputs can reduce rather than promote a country’s exports, particularly manufacturing goods (for example high tariffs on imported fabrics will reduce the price competitiveness of clothing exports). Likewise, trade barriers could disrupt production and reduce domestic employment in both the “protected” industries and those downstream sectors that use their outputs.  

Fourth, primarily trade balance is a function of a country’s national saving and investments, not of trade policies. In other words, trade policies, such as higher tariffs and quantitative restrictions, will have no impact on a country’s trade balance. Interesting enough, countries like Singapore which maintain fairly low trade barriers, run a trade surplus equal to as high as 20% of its GDP. In comparison, India was one of the most highly protected economies in the early 1990s when it experienced unsustainable large trade deficits. Further, there is a dynamic balance between a country’s trade balance and exchange rate: in an open economy, reducing a country’s imports could lead to an appreciation of its currency and eventually hurt its exports as well.     

What is your view on the trade deficit and trade balance? Why do you agree or disagree with the arguments of the WEC paper? Do you find any evidence that challenges the findings of the paper? Please feel free to leave your comments.

Trade Policy and the Textile and Apparel Industry: Discussion Questions

Global Partners

#1 Why or why not the textile and apparel industry should get involved in policy advocacy?

#2 Do you think the current U.S. trade policy reflects the interests of the U.S. textile and apparel industry? Please provide detailed examples.

#3 It is said that “trade is a way for countries to strengthen partnerships and alliances, promote peace and trust between the cooperating nations, and help other countries in need.” Do you think this principle still holds today?

#4 President Trump proposes an “America First Trade Policy,” which intends to encourage more “buy America” and reduce the U.S. trade deficit. How should President Trump respond if other countries adopt a similar approach by proposing initiatives such as “EU first trade policy,” “China first trade policy” and “Mexico first trade policy”?

#5 What do you take away from Case Study 2 regarding the making of U.S. trade policy?

Please mention the question # in your comment.