Trade Deficit
Does Trade with Low-Wage Countries Cause a Trade Deficit in the High-Wage Country?
The United States Business and Industry Council makes the following claim on its website:
The term “international imbalances” refers to the U.S. trade deficit and the large trade surpluses in China and other countries from whom we import. The phrase “manufacturing crisis” refers to the long-run trend of falling employment in the manufacturing sector in the United States
The council attributes the shrinking of the manufacturing sector to competition from low-wage countries such as China and Mexico.(2)
So the Business and Industry Council is actually saying that the international imbalances are caused by excessive imports, which, in turn, are fueled by low wages in other countries.
Questions:
1. Apply the economic analysis you studied in Chapters 6 (International Imbalances section) and 10 (Savings – Investment Identity in Open Economies section) to evaluate this claim. To build support for your argument, take a look
at Table 8 on the web site of the U.S.-China Business Council (China’s Top Export Destinations, 2010) at ttps://www.uscina.org/statistics/tradetable.html . Then check to see if all of the high-wage big importers run trade deficits. (Search for ’List of sovereign states by current account balance’ on Wikipedia.)
2. Explain why the Business and Industry Council should not be considered an unbiased source for analysis of the effects of imports on the well-being of the American people. (Hint: Who does the council represent – consumers or producers?)
Grading Rubric:
The source of international imbalances is correctly identified and explained. The student uses economic analysis appropriately to explain why the council’s argument is incorrect, and accurately explains why it has an interest in discouraging imports.
sources:
1)http://american economic alert.org/USBIC_Save_American_Manufacturing_Jobs_Summary.pdf
2)That is correct, but it’s not the whole story. Employment has also been affected by technological change in the U.S., which has increased labor productivity in manufacturing, causing firms to hire fewer workers.
To read chapter 6: use the book (Macroeconomics written by "Paul Krugman and Robin Wells "/ Third Edition.
…………………………..Answer preview………………….
The United States Business and Industry council has claimed that continuing to trade with low income countries such as Mexico and China leads to trade deficits in High wage countries. Secondly, this statement is true to some extend. This is because recent statistical reports have demonstrated that trading with those low wage countries has led to deficits in the exports…………………….
APA
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