Globalization has impacts on the performance of the economies of countries due to various reasons. Consider the case of international trade. It has been argued that the gains from 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.
There is also an issue of trade balance. A balance of trade is the difference between the monetary value of exports and imports of a country. 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 contrary, if the value of imports is greater than the value of exports, the trade balance indicates trade deficit (negative net export).
a. Does free trade contribute to the improvement of economic well-being in the U.S. economy? How does trade stimulate long-term economic growth? Explain. How do the gains compare to the losses? Explain using examples. What is the impact of free trade on domestic job creation policy? Elaborate with examples.
b. Do you think the U.S. exports and imports of goods and services are based on the principle of 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 like tariffs on the U.S. economy?
c. What are the impacts of currency devaluation and revaluation on the international trade? What is currency (exchange rate) war? How does it affect trade between countries? What are the impacts of currency manipulations on the U.S. trade?