Discussion Topic 1 : Trade, Economic Growth and Job Creation

The gains from specialization and trade are based on comparative advantages, which reflect the relative opportunity costs of production. When countries specialize in producing goods and services for which they have comparative advantages, total production in the global economy rises.

Trade advocates argue that this increase in the size of the economic pie can be used to make all trading countries better off through international trade.

Economists also use the principle of comparative advantage to advocate free trade among countries as a better policy.

Based on the above summary and the detailed descriptions of the international trade issues in the textbook (Chapter 38) discuss the following questions.

• Does free trade contribute to the improvement of economic well-being? How does trade stimulate long-term economic growth? Explain.

• Who gains and losses from free trade among countries, and how do the gains compare to the losses? Explain using examples.

• Do you think the U.S. export and import of goods and services are based on the principle of a comparative advantage of trade? Explain.

• Why do countries impose trade restrictions on goods and services they import from other countries? What are the pros and cons of trade protectionism?

• What is the impact of free trade on domestic job creation policy? Elaborate with examples.

Discussion Topic 2 : Trade Balance and Exchange Rates

A balance of trade (trade balance) is the difference between the monetary values of exports and imports of a country's economic output over a given period of time. Trade balance can be positive (favorable) when the value of exports is greater than the value of imports. The positive trade balance is also called trade surplus. On the other hand, if the value of imports is greater than the value of exports, the trade balance indicates trade deficit.

Trade balance affects the Gross Domestic Product (GDP) of a country because net export is a component of the GDP. Recall GDP = C + I + G + Nx

Trade balance also affects the exchange rate of a country's currency. Supply and demand for foreign currency result in changing prices of a currency.

The price of a currency changes as demand for a foreign currency changes.
Based on the above summary and the detailed descriptions of the balance of payments, exchange rates and trade deficits issues in the textbook (Chapter 39) discuss the following questions.

• Is it trade deficit or trade surplus that contributes more to economic growth? Why?

• What are the factors that increase and decrease the demand for a foreign currency?

• What are the impacts of currency devaluation and revaluation on international trade?

• What is currency war? How does it affect trade between countries?