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U.S. - China Trade Relations: Using Current Events to Teach International Economics

U.S. - China Trade Relations: Using Current Events to Teach International Economics. Dr. Margaret A. Ray Professor of Economics, University of Mary Washington Director, UMW Center for Economic Education MRAY@UMW.edu PowerPoint and resource list available at: http://mrayapecon.umwblogs.org

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U.S. - China Trade Relations: Using Current Events to Teach International Economics

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  1. U.S. - China Trade Relations: Using Current Events to Teach International Economics Dr. Margaret A. Ray Professor of Economics, University of Mary Washington Director, UMW Center for Economic Education MRAY@UMW.edu PowerPoint and resource list available at: http://mrayapecon.umwblogs.org and on the NCSS website

  2. U.S. (Mis)Perceptions of U.S.-China Trade • More than half of Americans mistakenly see China as the world’s largest economy. • 63% say that “more jobs are lost from imports” while only 8% say “more jobs are gained from exports.” • 53% say that “free trade between the US and other countries” loses more jobs than it creates. Americans and the World: Public Opinion on international affairs http://www.americans-world.org/digest/global_issues/intertrade/reservations_trade.cfm

  3. Common Fears About U.S. – China Trade • China will overtake the U.S. as the world’s largest economy • China steals U.S. factory jobs (trade deficit) • China’s manipulation of its currency hurts the U.S. economy (undervalued Yuan) • China controls the U.S. because it finances our debt

  4. China’s Economy“China will overtake the U.S. as the world’s largest economy” • By 2020 China is projected to overtake the US to lead the list of the world's top ten largest economies by GDP measured in PPP terms – Euromonitor Global Research • China is the fastest growing market for U.S. exports.

  5. U.S. – China Trade Deficit“China steals U.S. factory jobs” “We specialize in innovation. We start new industries. We create new products. (When an industry matures) we lose our comparative advantage. That’s when the rest of the world increases its comparative advantage and those jobs gradually move overseas. That is a sign of our success – that we are continually exporting jobs.” – Erica Groshen, FRB New York

  6. U.S. Dollar/Yuan Exchange Rates“China’s manipulation of its currency hurts the U.S. economy” • China pegs its currency to the U.S. dollar at about 6.83 yuan per dollar. • An artificially low value of the Yuan is a de facto subsidy for Chinese exports to the U.S (Congressional Research Service 7-5700, www.crs.gov)

  7. Chinese Ownership of U.S. Debt“China ‘controls’ the U.S. because it finances our debt” In 2011, foreigners owned $4.45 trillion of U.S. debt, which is equal to 32% of the total debt. "Treasury Direct-Monthly Statement of the Public Debt Held by the U.S.-January 2011" (PDF). http://www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds012011.pdf. Retrieved May 18, 2011.

  8. The Real Story: National Standards • Standard 5 : TradeVoluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations. Related concepts: Barriers to Trade, Barter, Exports, Imports, Voluntary Exchange, Exchange, Exchange Rate • Standard 6 : SpecializationWhen individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase. Related concepts: Division of Labor, Production, Productive Resources, Specialization, Factor Endowments, Gains from Trade, Relative Price, Transaction Costs, Factors of Production, Full Employment • AP Economics Comparative advantage, absolute advantage, specialization and exchange Open Economy: International Trade and Finance Balance of payments accounts Foreign exchange market Net exports and capital flows Links to financial and goods markets

  9. Economic Models Imports, Exports, Voluntary Exchange: Circular Flow Model Chapter 5: The Circular Flow of Income and Product http://www.uri.edu/artsci/ecn/starkey/590/Macro_ch05_v2.pdf Comparative Advantage and Trade: Production Possibilities Curve Dallas Fed’s Everyday Economics: International Trade Foreign Exchange Markets: Supply and Demand Dallas Fed’s Everyday Economics: Globalization

  10. The Circular Flow with International Sector http://www.uri.edu/artsci/ecn/starkey/590/Macro_ch05_v2.pdf

  11. Curriculum Ideas Koppel on Discovery: The People’s Republic of Capitalism http://dsc.discovery.com/convergence/koppel/highlights/highlights-02.html The American and Chinese economies are irreversibly intertwined. The common complaint that the Chinese are taking jobs away from American workers is in many cases true. China's cheap and abundant labor attracts manufacturing from all over the world. Still, economists estimate that the U.S. is as much as $70 billion richer each year because of its relationship with China —something must be going right. The Choice: A Fable of Free Trade and Protectionism by Russell Roberts A novel on the global economy in which the ghost of David Ricardo explains the argument for free trade to the CEO of an American manufacturing firm (and therefore the students reading the book), without using economic jargon. http://www.invisibleheart.com/Iheart/CSampleC1.htmlTeacher’s Guide and Student Questions: ttp://www.invisibleheart.com/Iheart/CGuide.html Big Mac Index : Council for Economic Education, EconEd Link, The Big Mac Index. CEE, EconomicsMinute. http://www.econedlink.org/lessons/index.php?lid=156&type=student The Economist, Big Mac Index. http://www.economist.com/blogs/dailychart/2011/07/big-mac-index Business Insider, Big Mac Index and the Yuan. http://articles.businessinsider.com/2011-08-02/markets/29955633_1_rmb-china-ingenious-way Interactive Infographics GDP: http://money.cnn.com/news/economy/world_economies_gdp/ The World’s Best Countries: http://www.thedailybeast.com/newsweek/2010/08/15/interactive-infographic-of-the-worlds-best-countries.html State Exports to China: https://www.uschina.org/public/documents/2011/03/full_state_report.pdf Visualizing The US China Trade Relationship Across the Globe and China vs. US: A Visual Comparison (Posters) http://www.mint.com/blog/trends/visualizing-uschina-trade-relations/ http://www.mint.com/blog/trends/china-vs-united-states-a-visual-comparison/ International Trade Game (Dr. Dennis Weidenaer) Comparative Advantage and Trade Worksheet (Margaret Ray)

  12. The People’s Republic of Capitalism

  13. The Choice A short novel on the global economy in which the ghost of David Ricardo has to earn his wings by explaining the argument for free trade to the CEO of an American manufacturing firm (and therefore the students reading the book), without using economic jargon. The book presents the key international issues facing the U.S. And examines how international trade affects business and peoples’ daily lives.

  14. The Big Mac Index An EconomicsMinute lesson from CEE looks at how the The Economist’s “Big Mac Index” helps to explain variations in exchange rates and prices. http://www.economist.com/blogs/dailychart/2011/07/big-mac-index http://www.econedlink.org/lessons/index.php?lid=156&type=student Big Mac Index Says The Yuan Is Actually Valued Just Right Vincent Trivett|August 02, 2011http://articles.businessinsider.com/2011-08-02/markets/29955633_1_rmb-china-ingenious-way#ixzz1eXpN26cZ

  15. Interactive Infographics: GDP http://money.cnn.com/news/economy/world_economies_gdp/

  16. Interactive Infographics: Various Measures

  17. Interactive Infographics: State Exports to China The website also includes detailed data regarding what and how much each individual state exports to China https://www.uschina.org/public/documents/2011/03/full_state_report.pdf

  18. Poster: Visualizing U.S.-China Trade Relations http://www.mint.com/blog/trends/visualizing-uschina-trade-relations/

  19. http://www.mint.com/blog/trends/china-vs-united-states-a-visual-comparison/http://www.mint.com/blog/trends/china-vs-united-states-a-visual-comparison/

  20. International Trade GameDr. Dennis Weidenaer General Directions for Teacher Inventory of Packets 10 blue paper 5 white paper 1 green pen 3 gold paper 1 glue 2 salmon paper 1 yellow pen 5 green paper 1 blue pen 5 salmon paper 1 glue 1 blue pen 1 yellow pen 3 white paper 1 box paper clips 4 gold paper 3 salmon paper 2 white paper 1 black pen 3 gold paper 1 yellow pen 5 green paper 1 ruler 1 black pen 1 red pen 1 scissors • Divide the class into 5 nations • Give each nation a packet of materials • Tell each nation they have 10 minutes to produce all 6 categories of output listed in their instructions • Give NO OTHER INSTRUCTIONS – let them discover that they will need to trade and establish their own terms of trade • Debrief the activity by showing comparisons of quality of production, innovation, etc. Ask the question “Why are some nations better at production than others?”

  21. International Trade Game Student Instructions Each Nation has 10 minutes to produce each of the following; • Food: 4 strips of gold paper 3” by 1” • Clothing: A green “T”, 4” high • Shelter: A white square, 2” high and a salmon-colored triangle • Industry: A 5 link paper chain with each link a different color • Education: A four page book made of 2 colors • Energy: One blue 5” square

  22. Comparative Advantage and Trade Exercise Worksheet handout provided Word file of worksheet available on UMW blog or conference materials website. Key: The U.S. has an absolute advantage in apparel and equipment Portugal has an absolute advantage in neither The opportunity cost of 1 unit of equipment in the U.S. is 1 unit apparel. The opportunity cost of 1 unit of apparel in the U.S. is 1 unit equipment The opportunity cost of 1 unit of equipment in China U.S. is 3 units apparel (note: 30 :90 = 30/30 : 90/30 = 1:3) The opportunity cost of 1 unit of apparel in China is 1/3 unit equipment (note: 90 : 30 = 90/90 : 30/90 = 1 : 1/3 The U.S. has a comparative advantage in equipment (U.S. opportunity cost is lower than China’s, $1 versus $3) China has a comparative advantage in apparel (China’s opportunity cost is lower than the U.S., $.33 versus $1) Without Trade With Trade With Trade (production) (consumption) Apparel Equipment Apparel Equipment Apparel Equipment China 30 20 90 0 45 50 U.S. 50 50 0 100 45 50 Total 80 70 90 100 90 100 What happens to total world production when the countries specialize and trade? It increases. • What economic concept describes this result? Comparative Advantage • Are the countries better off as a result of trading? No, The U.S is not (45 and 50 after versus 50 and 50 before). • What determined whether trade made the countries better off? The terms of trade (assuming each country exported half). The U.S. would not trade if it was made worse off. The terms of trade would need to be different. However, the example shows that the benefits from trade may not be shared equally or equitably. • Find the terms of trade need to be for these countries to be willing to trade: • The U.S. would have to receive more than 1 unit of apparel for a unit of equipment and China is willing to pay less than 3 units of apparel for a unit of equipment, so they can agree on a price between 1 and 3 units of apparel fro a unit of equipment. • China would have to receive more than 1/3 units of equipment for a unit of apparel and the U.S. is willing to pay less than 1 unit of equipment for a unit of apparel, so they can agree on a price between 1/3 and 1 unit of equipment fro a unit of apparel..

  23. References Articles The myth of America’s decline by Rob Asghar. http://www.cnn.com/, 11/17/2011. Fiction still drives the U.S.-China trade debate by Daniel Ikenson. http://www.cato-at-liberty.org/fiction-still-drives-the-u-s-china-trade-debate/, 9/21/2011. Higher labor pains in U.S.-China trade? By Kevin Voigt. http://www.cnn.com/, 9/27/2011. How much does US-China trade hurt American workers? Slowly a clearer picture by Mark Trumbull. http://csmonitor.com/Business/2011/0510/How-much Most Americans think China is No. 1 economy; it isn’t by Kathy Chu. http://www.usatoday.com/, 2/15/2011. 4 US misperceptions about China’s economy. http://www.chinadaily.com.cn/opinion/2011-05/16/content_12520233.htm, 5/15/2011. Free trade and comparative advantage by Bob Mittelstaedt and Is China rising? Is the U.S. declining? by Clyde Prestowitz. http://www.futureofuschinatrade.com/issue/china-rising-us-declining. Confronting China-US economic imbalance by RoyaWolverson. http://www.cfr.org/china/confronting-us-china-economic-imbalances/p20758, 10/19/2010. In China’s debt by James Fallows in The Next Economy: The Debt Issue, a Special Supplement to The Atlantic, Fall 2011, page 22. Reports Congressional Research Reports China’s economic conditions, June 2011. http://www.fas.org/sgp/crs/row/RL33534.pdf China’s currency: An analysis of the economic issues, August 2011. http://www.fas.org/sgp/crs/row/RS21625.pdf Is China a threat to the US economy? http://www.fas.org/sgp/crs/row/RL33604.pdf China-US trade issues, August, 2011. http://www.fas.org/sgp/crs/row/RL33536.pdf East Asia Institute US-China relations series, July 2011. http://www.eai.or.kr/data/bbs/eng_report/2011070516401177.pdf Public perceptions of US-China relations, July 2011. http://www.eai.or.kr/data/bbs/kor_report/20110705177148.pdf Websites US Census Bureau, international trade data – China: http://www.census.gov/foreign-trade/balance/c5700.html UCLA Asian American Studies Center, U.S./China Media Brief: http://www.aasc.ucla.edu/ USC US-China Institute: http://china.usc.edu/ FutureofUSChinaTrade.com - Arizona State University and The Kearny Alliance: http://www.futureofuschinatrade.com/about-us Office of the United States Trade Representative – China: http://www.ustr.gov/countries-regions/china

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