International Trade

<<Spring 2009>>

S. Atri                                                                                                                                                Office Hours:
Mahar 431A                                                                                                                                        Tuesday: 12:30 - 2:00 PM
Phone: (315) 312-3954                                                                                                                        Thursday: 11:30 - 2:00  PM
                                                                                                                                                            Other days: By appointment
Email:  and by appointment

The economies of the world are becoming increasingly interdependent. The economic benefits of trade among nations have long been recognized and international trade has been growing since the emergence of nation states despite frequent disruptions due to wars and other conflicts. Since the end of World War II, however, the political structure of the world has become stable enough to allow for a steady expansion of economic relations among countries. Through a series of regional and global treaties and agreements (e.g., European Economic Union, NAFTA, GATT, etc.) and with the help of international organizations such the IMF, World Bank, and World Trade Organization the countries of the world have been opening their economies to their neighbors and, to varying degrees, to other countries. In 1950 the U.S. export (or import) was only about 4 percent of its GDP, whereas in 2002 over 13 percent of our national income went to imports and we exported about 10 percent of our GDP. Contrary to the occasional arguments made in some political quarters against free trade and economic openness, our economic links to the other economies of the world have, by and large, brought us markedly higher standards of living which could easily be observed in both quantity and quality of the goods and services we consume.
While enjoying the benefits of international trade, we should be mindful of the drawbacks of international interdependence. One of those drawbacks is the increasing vulnerability of our economy to the ups and downs of other economies. Our concerns about economic stagnation in Japan, the value of Chinese yaun, and macroeconomic stability in the countries of East Asia and Latin America whose economies are closely linked to ours reflect this vulnerability. Besides, while on the whole the country has benefited from free trade and foreign competition, free trade has occasionally brought about hardship to some of our domestic industries and resulted in significant sectoral labor displacements (unemployment). Are the costs of these external disturbances to the economy significant enough to warrant a more conservative trade policy? Should we protect our weaker industries from foreign competition? Does everyone benefit from trade equally? Should we trade only with those countries whose economic systems are similar to ours? Does trade with low-wage (low-cost) countries like China have negative impacts on our wages and standards of living? Should we limit our trade with those countries whose environmental laws are less stringent than ours? Should we let foreigners invest in the U.S. freely? Should we limit American investments abroad? Is it a good idea to borrow from abroad to finance our economic growth? Is it a good idea to borrow from abroad to finance our government deficits? Has NAFTA been good for the U.S.? Should NAFTA be expanded to include other Central and South American countries?
The objective of this course is to provide students with a good understanding of the economic theory of trade and tools of analysis, enabling them to better understand the trade issues facing us as well as the complexities of the global economy and international trade relations.
We will start the course with a review of the recent developments in the world economy. Then we will briefly look at the patterns of trade in the U.S. with references to the balance of payments and the exchange rate. Next we will introduce the concept of comparative advantage in the context of a one-factor world. The specific factors model will be the context in which we address prices, wages and income distribution. Factor endowments and the Neoclassical model of trade will be introduced next through which we will address the impacts of trade on prices and wages in a two-factor economy. The welfare implications of international trade will be the topic of our next discussion. Next we will address tariffs and other trade policy instruments. Economic integration will be the subject of our following discussion in which we will address NAFTA and its implications for the U.S., Mexico and Canada. Labor mobility and immigration and capital movements will be the subjects of our next discussion. Finally, we will examine the impact of trade on economic development and transition.

Beth V. Yarbrough and Robert M. Yarbrough, The World Economy: Trade and Finance, Seventh Edition, Thompson/South-Western, New York: 2006

The will be two scheduled exams as follows:
Scheduled Tests 
Planned Coverage 
Weight (%)
Test I
Tuesday, March 3
Chapters 1-4 
Test II 
Tuesday, April 14
Chapters 4-7
Final Exam 
Tuesday, May 12 (6:00-8:00pm)
Chapter 6-10

In addition to the above exams students will be given regular quizzes and/or homework assignments. Quizzes and homework assignments carry a total of 10 points which will be added to the points obtained from the schedules tests.

Note: Students who have a disabling condition which might interfere with their ability to carry out the course requirements are encouraged to speak, confidentially, to the class instructor, or to contact the Office of Disability Services.

Students are strongly urged to attend classes regularly and keep up with the course coverage and all assignments. Excessive absences could have an adverse effect on one's final course grade. Make-up tests are given only when a student misses a test as a result of professionally diagnosed and treated illness and other verified extenuating circumstances. Make-up tests may or may not have the same format as the scheduled tests. There will be no makeups for missed quizzes.

Introduction: A brief review of the composition of trade in the world and in the US

The Theory of Trade: A Brief Historical Review of the Trade Theory
            Classical Views: Adam Smith and Absolute Advantage
            Ricardian Comparative Advantage
            Neoclassical Trade Theory

Factor Endowments
            Production and Consumption under Autarky
            Specialization and Productivity
            The Heckscher-Ohlin Model

Trade and Economic Welfare
            How does trade affect prices?
            How do output prices affect factor prices?
            Does trade result in factor price equalization?
            Do we all gain from trade equally?
            Intra-Industry Trade
            Trade and Economies of Scale
            Trade and Transportation Costs

Trade Models and the Actual Patterns of Trade: A Look at Some Empirical Evidence
Trade Restricting Instruments
            Measuring Welfare Effects of Tariffs and Quotas
            Tariffs and Factor Prices
            The Effective Rate of Protection
            Other Trade Barriers
            Arguments for Restricting Trade
Trade Agreements and Economic Integration
            The Benefits and Costs of Economic Integration (Trade Agreements)
            The North American Free Trade Agreement (NAFTA)
            Mexico before NAFTA: Maquiladoras
            An Evaluation of NAFTA from a Mexican Perspective
            An Evaluation of NAFTA from a U.S. Perspective
            Trade Restricting Effects of NAFTA
International Factor Movements: Immigration and Multinationals
Trade and Economic Growth
Trade Issues of the Developing World

College Policy on Intellectual Integrity

Intellectual integrity on the part of all students is basic to individual  growth and development through college course work. When academic dishonesty occurs, the teaching/learning climate is seriously undermined and student growth and development are impeded. For these reasons, any form of  intellectual dishonesty is a serious concern and is therefore prohibited.

The full intellectual integrity policy can be found at

Note: Students who have a disabling condition which might interfere with their ability to carry out the course requirements are encouraged to speak, confidentially, to the class instructor, or to contact the Office of Disability Services