Handout: Trade and the Division of Labor
Handouts for Guest Lectures in Marcia Parker's Course: Trade and California

Handout: Comparative Advantage; Micro Trade Market Failures

Handout: Comparative Advantage; Micro Trade Market Failures

J. Bradford DeLong
U.C. Berkeley
January 16, 2006

Comparative Advantage

Take a look at some trade numbers:

Principal Goods Exports: November 2006:

  • $4.31B: Semiconductors
  • $4.25B: Civilian aircraft
  • $3.08B: Computers and accessories
  • $2.76B: Pharmaceutical preparations
  • $2.73B: Industrial machines, other

Principal Goods Imports: November 2006:

  • $21.09B: Automotive vehicles, parts, and engines
  • $15.87B: Crude oil
  • $5.65B: Pharmaceutical preparations
  • $5.60B: Computers and accessories
  • $5.35B: Apparel--cotton

A question:

We understand why we import crude oil--ExxonMobil's rigs can pump more oil at other places on the earth than they could here. We understand why we import autos--as a former owner of a Chevy Citation and a Ford Taurus, I understand that especially well. There are lots of goods that people in other countries can make more productively than we can here in America--can make with fewer workers and less capital. But why do we import goods like apparel, where U.S. producers are the most productive in the world?

An answer:

The principle of comparative advantage...

You can be more productive than somebody else at a task, but it can still be not worth your time

Micro examples: I'm a d---ed good xeroxer.

The morality of comparative advantage:*

Is this ethical?
You're taking advantage of somebody else's lousy bargaining position...
You're giving them opportunities they wouldn't otherwise have had...
The case of Cuba: market exchange is inherently unjust and destructive and the U.S. trade embargo against Cuba is the source of the island's impoverishment


Micro Trade Market Failures

Externalities:

  • Environment
  • Labor standards
  • Communities of technological and craft practice
  • People who don't know what they really need

All cases in which the maxim "if it's profitable, it's good" is false...

What is to be done?

  • Domestic policies
  • Trade policies
    • Government failure
    • Responsibility to people in other countries?

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