Transcript Slide 1

Trade Choices
You have $1,000 to spend and your alternatives are to:
Purchase one Canadian made canoe and one Canadian made bicycle.
or
Purchase one Chinese made television, one Korean made bicycle and two
cases of French wine.
or
Use the $1,000 for investment in the stock of a U.S. company.
Which do you choose to do?
Kenneth Leonard PhD
Foundation for Teaching Economics
Apples and Oranges
Apple price $.70/lb
Orange Price $.70/lb
Washington Rancher
20 acres yields
Apples 50 bu/acre
Oranges 1bu/acre
Florida Rancher
20 acres yields
Apples 2bu/acre
Oranges 40 bu/acre
Kenneth Leonard PhD
Foundation for Teaching Economics
Canada’s GDP and Trade 2007 $$ billions
Year
GDP
Total
Exports
Total
Imports
1995
635
236
216
2000
779
354
310
2006
1375
495
461
2007
1530
534
506
2008
1615
570
545
2009
1438
414
439
2010
1695
497
530
2011
1866
579
604
Source: World Bank
Kenneth Leonard PhD
Foundation for Teaching Economics
Top Canadian Trade Partners
Total Trade: Exports Plus Imports
Rank by Exports( CA $--billions)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
US
570
564
531
557
581
577
577
603
457
502
551
573
17
20
23
31
37
42
48
53
51
58
65
70
17
14
15
17
19
21
24
26
21
27
29
27
23
24
22
22
24
25
25
26
21
23
24
25
15
15
14
17
18
20
22
24
21
27
30
31
3
3
3
3
4
5
6
6
5
5
7
8
7
7
7
8
8
9
8
10
9
10
12
10
11
11
12
12
14
15
15
17
15
15
17
18
China
UK
Japan
Mexico
Netherlands
S Korea
Germany
Source: Industry Canada Trade Data Online (TDO)
Kenneth Leonard PhD
Foundation for Teaching Economics
United States’ Trade with
Canada, 2011
in billions of dollars
1-Digit SITC Commodity
Exports
Imports
19.7
17.4
1 Beverages and Tobacco
1.4
0.85
2 Crude Materials, Inedible, except Fuels
8.2
11.8
18.3
101.9
0.6
1.2
5 Chemicals and Related Products, N.E.S.
32.4
28.1
6 Manufactured Goods Classified Chiefly by Material
38.7
40.4
7 Machinery and Transport Equipment
124.6
83.3
8 Miscellaneous Manufactured Articles
29.2
13.2
9 Commodities and Transactions, N.E.S.
7.7
16.3
280.8
314.5
0 Food and Live Animals
3 Mineral Fuels, Lubricants and Related Materials
4 Animal and Vegetable Oils, Fats and Waxes
* TOTAL *
tse.export.gov
Kenneth Leonard PhD
Foundation for Teaching Economics
Imports of Goods by Category 2012
Other, 2%
Farm, fishing, and
intermediate food
products, 3%
Special Transactions, 1%
Metal ores and nonmetallic minerals, 2%
Energy Products, 10%
Metal and Non-metallic
Mineral Products, 9%
Aircraft and Other
Transportation and
Parts, 3%
Consumer Goods, 20%
Motor Vehicles and Parts,
17%
Electronic and Electrical
Equipment and Parts, 12%
Industrial Machinery,
Equipment, and parts,
10%
Basic and
Industrial
chemical,
plastic, and
rubber
products, 8%
Forestry Products and
building and packaging
materials, 4%
www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm
Kenneth Leonard PhD
Foundation for Teaching Economics
Exports of Goods by Category 2012
Aircraft and Other
Transportation and Parts,
4%
Farm, fishing, and
Other, intermediate food
Special Transactions, 0% 2%
products, 6%
Energy Products, 23%
Consumer Goods,
10%
Motor Vehicles and Parts,
15%
Metal ores and nonmetallic minerals, 4%
Electronic and Electrical
Equipment and Parts, 5%
Industrial Machinery,
Equipment, and parts, 6%
Forestry Products and
building and packaging
materials, 7%
www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec04-eng.htm
Basic and Industrial
chemical, plastic, and
rubber products, 7%
Metal and Non-metallic
Mineral Products, 12%
Kenneth Leonard PhD
Foundation for Teaching Economics
Sources of Canadian Imports 2011
All Others, 21%
Italy, 1%
Algeria, 1%
France, 1%
South Korea, 1%
United States, 49%
United
Kingdom, 2%
Germany, 3%
Japan, 3%
Mexico, 6%
China, 11%
www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00029.html#it2
Kenneth Leonard PhD
Foundation for Teaching Economics
Destinations of Canadian Exports 2011
Hong Kong, 1%
France, 1%
Germany, 1%
Netherlands, 1%
South Korea, 1%
All Others, 10%
Mexico, 1%
Japan, 2%
China, 4%
United Kingdom, 4%
United States, 74%
www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00029.html#it2
Kenneth Leonard PhD
Foundation for Teaching Economics
Canadian Goods Trade Balance With Other Nations, 2012
($CA - billions)
Country
Exports
Imports
Trade Balance
United States
338.4
296.4
42
Japan
10.9
10.8
0.1
United Kingdom
19.8
8.3
11.5
EU
21.1
36.3
-15.2
Other OECD
18.5
36.0
-17.5
All Others
53.8
86.7
-32.9
http://www.census.gov/foreign-trade/balance/
Kenneth Leonard PhD
Foundation for Teaching Economics
U.S. Balance of Payments 2008
($ billions)
Current Account
-706.0
Merchandise trade balance
-695.9
Goods & Services exports 1,826.6
Goods & Services imports -2,522.5
Net Transfers
-128.3
Net Income Payments
118.2
Capital Account
Increase in U.S. holdings of foreign assets
Increase in Foreign holdings of U.S. assets
Statistical Discrepancy
http:bea.gov
+706.0
-106
505,166
+200
Canada’s Balance of Payments 2012
($ millions)
Current Account
Goods & Services exports
Goods 474,422;
-66,944
545,825
Services 107,850
Goods & Services imports
-582,273
Goods 462,544; Services 83,28
Net Transfers
Net Income Payments
Financial Account
Net Acquisition of Financial Assets
Net Incurrence of Liabilities
Statistical Discrepancy
statcan.gc.ca
-3,671
-26,824
+63,590
-119,093
182,683
3,354
Kenneth Leonard PhD
Foundation for Teaching Economics
Destinations of Canadian Foreign
Direct Investment
2011
(percent)
Sources of Foreign Direct Investment
in Canada
2011
(percent)
United States
40
United States
54
United Kingdom
12
United Kingdom
6
Bermuda
2
Bermuda
0.3
France
1
France
30
Germany
1
Germany
3
Netherlands
1
Netherlands
9
Switzerland
1
Switzerland
3
Australia
4
Australia
1
Japan
1
Japan
http://bea.gov
2
Kenneth Leonard PhD
Foundation for Teaching Economics
Statistical Comparison of NAFTA Countries, 1997
(In current U.S. $$)
Population
(millions)
GDP
(billions
U.S.$)
GDP
per capita
Exports
(billions $)
Imports
(billions
$)
Canada
29.9
637.5
21,260
250.6
238.5
Mexico
95.4
401.4
4,207
121.6
122.4
U.S.
272.6
8,265.0
30,282
934.8
1,042.7
Statistical Comparison of NAFTA Countries, 2011
(In current U.S. $$)
Population
(millions)
GDP
(billions
U.S.$)
GDP
per capita
Exports
(billions $)
Imports
(billion $)
Canada
34.5
1,736.0
50,345
539.1
561.9
Mexico
114.8
1,153.3
10,047
365.2
380.6
U.S.
311.6
14,991.3
48,112
2,105
2,665.0
Kenneth Leonard PhD
Foundation for Teaching Economics
Hourly Compensation Costs for Workers
in Manufacturing, Selected Countries, 2011 (current dollars)
Labor Costs
(in $ U.S.)
United States
35.53
Canada
36.56
France
42.12
Germany
47.38
Italy
36.17
Japan
35.71
United Kingdom
30.77
Korea
18.91
Mexico
6.48
Singapore
22.60
Philippines
2.01
v
www.bls.gov
Kenneth Leonard PhD
Foundation for Teaching Economics
Classroom Activity:
The Magic of Markets:
Trade Creates Wealth
www.fte.org/teacher-resources/lesson-plans/efllessons/the-magicof-markets-trade-creates-wealth/
Classroom Activity:
Foreign Currency
&
Foreign Exchange
http://www.fte.org/teacher-resources/lesson-plans/efllessons/foreigncurrencies-and-foreign-exchange/
Classroom Activity:
The “Giant Sucking Sound”
http://www.fte.org/teacher-resources/lesson-plans/efllessons/thegiant-sucking-sound-job-woes-or-trade-flows/
Background
The demand for labor is derived demand.
The demand for workers is dependent
upon the demand for the product the
workers make. If no one wants to
purchase the product, then there will be no
demand for workers to produce it.
Background
The market price of the product affects
employers' hiring decisions. If the cost of
labor is so high that an employer cannot
make a profit by selling the product at the
market price, then the employer will not be
willing to pay for the labor. In simplest
terms, market prices influence the wages
that employers are willing to pay.
Background
Wages are also influenced by productivity
(output per man-hour of labor). In hiring
any particular worker, the employer must
ask how much the worker will contribute to
the business in terms of output.
Economists call this the "value added” or
“marginal value."
Productivity
Worker productivity is determined by a number of
factors, some under control of the worker himself
and some the result of the conditions of
employment. Examples of productivity factors
include:
the worker's physical abilities;
the worker's level of education;
the type and amount of equipment (capital) available;
other factors and conditions in and around the particular
job location.
It's also important to understand that how many
other workers have already been hired affects a
worker's productivity.
In some cases, hiring additional workers increases
productivity as each worker is able to specialize.
At some point, however, hiring additional workers
results in diminishing marginal returns, meaning
that the additional (marginal) output attributable to the
next worker hired will necessarily be less than that of
the worker hired before him. A simple example of this
is the "too many cooks spoil the broth" syndrome.
1 Kitchen - How Many Cooks?
#
cooks
#pizzas
made
# additional
pizzas from
hiring this
cook?
What happened?
0
0
0
1
10
10
Good cook – does everything himself
2
15
1 baker, 1 prep and waiter
3
25
45
4
55
20
10
5
55
0
6
40
-15
No Cook – No Pizza !
1 baker+1 prep+1 waiter – what a system!
Extra guy – helps who ever is behind
Things aren’t so hectic
Get her out of the way !
Would you hire 6 cooks?
What's the most you'd be willing to pay cook #4?
Scenario
In college, Maria and Mario started a t-shirt
business out of their parents' garage. Now
they've graduated, and would like to expand
the business and become the bosses instead
of the "do-everything" people.
They've made a list of the different tasks
involved in the business - most of which they
now do themselves. They figure there are 2
kinds of tasks in the t-shirt business:
Skilled Jobs
Bookkeeping
Marketing
T-shirt Design
Advertising
Shipping & Ordering
Unskilled or low-skill
jobs
Taking orders
Cutting Patterns
Sewing
Printing
Labeling
Packing
Delivery
Mario & Maria’s dilemma
Every person they hire means one less
thing they have to do themselves - and
they can choose to do the things they
enjoy most - like the design and
marketing, for example. The question
is how many people to hire.
Based on past experience, here's what
they think will happen when they begin
to hire workers:
Output, Additional (Marginal) Product, and Additional (Marginal)
Revenue
T-shirt price (P) = $_________
YELLOW CARD WORKERS
#
Hired
T shirts
Made
1st
Added
Product
(MP)
PINK CARD WORKERS
#
Hired
T shirts
Made
5
1st
8
2nd
8
2nd
14
3rd
10
3rd
19
4th
11
4th
22
5th
12
5th
24
6th
12
6th
25
P xMP
Added
Product
(MP)
P x MP
Round #2 – Wages Paid
Yellow Card
Round #2 – Profit Calculation
# t-shirts produced
(pink+yellow)
Pink Card
Worker
Wage
Worker
Wage
Hired
Paid
Hired
Paid
1st
1st
2nd
2nd
3rd
3rd
4th
4th
5th
5th
6th
6th
(from
chart)
X Price of t-shirts X $ 10
=$
= TOTAL REVENUE
—$
— TOTAL COST
= PROFIT Round $
#2
Sub-total
+Sub-total
=
Total
cost
Problem
You are a member of your firm's Make It Work Circle. The firm has
adopted a profit-sharing scheme and created the MIW Circle in
which employees, management and ownership meet regularly to
discuss the business. The profit-sharing agreement means that
employees have a stake in the success of the business - if the
firm makes more profit, the employee gets more income - and
therefore, employees participate enthusiastically in the MIW
meetings.
The market for t-shirts has grown in response to fashion trends and
the employer has found a backer willing to provide the
investment funds necessary to triple the size of the company.
However, the company's personnel recruiter has reported that
it's practically impossible to hire yellow card workers.
The employer has called an MIW meeting to brainstorm solutions to
this labor dilemma. Make a list of things the company could do
to take advantage of the opportunity to expand.
Who?
Employer
US Skilled
worker
US Unskilled
worker
t-shirt
consumer
Mexican
unskilled
worker
Helped or hurt by
"exporting"
unskilled jobs
to Mexico?
How?
Apparel Sourcing, Cutting, Sewing, Distribution
"A Relationship of Trust and Profitability"
The North America Free Trade Agreement has opened new opportunities for
trade in the apparel industry between Mexico and the United States.
Peñyasa was incorporated in 1997 as a garment manufacturing company to
service the U.S. market.
Peñyasa's cutting and sewing plant is a world class facility with an output
capacity of 60,000 dozens per month with 450 operators.
Peñyasa's management team is a blend of experienced professionals from
different fields that fully understand the concept of global sourcing.
Our labor costs are low - average 50% - 75% below comparable US rates. Work
quality is high. We guarantee to cut your costs by 30-50%!
Sourcing with Peñyasa will significantly reduce costs and add value to your entire
operation, allowing you to concentrate on sales, marketing, and management.