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
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
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
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.
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
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)
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.
The Real Story: National Standards
•
Standard 5 : Trade
Voluntary 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 : Specialization
When 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
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
The Circular Flow with International Sector
http://www.uri.edu/artsci/ecn/starkey/590/Macro_ch05_v2.pdf
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.html Teacher’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)
The People’s Republic of Capitalism
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.
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/inde
x.php?lid=156&type=student
Big Mac Index Says The Yuan Is
Actually Valued Just Right
Vincent Trivett|August 02, 2011
http://articles.businessinsider.com/20
11-08-02/markets/29955633_1_rmbchina-ingenious-way#ixzz1eXpN26cZ
Interactive Infographics: GDP
http://money.cnn.com/news/economy/world_economies_gdp/
Interactive Infographics: Various Measures
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
Poster: Visualizing U.S.-China Trade Relations
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
General Directions for Teacher
• 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?”
Inventory of Packets
10 blue paper
1 green pen
1 glue
5 green paper
5 salmon paper
1 blue pen
1 yellow pen
1 box paper clips
2 white paper
3 gold paper
5 green paper
1 black pen
1 red pen
1 scissors
5 white paper
3 gold paper
2 salmon paper
1 yellow pen
1 blue pen
1 glue
3 white paper
4 gold paper
3 salmon paper
1 black pen
1 yellow pen
1 ruler
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
Comparative Advantage and Trade Exercise
Worksheet handout provided
Key:
Word file of worksheet available on UMW blog or conference materials website.
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
Apparel
Equipment
With Trade
(production)
Apparel
Equipment
With Trade
(consumption)
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..
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-tradedebate/, 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 Roya Wolverson. http://www.cfr.org/china/confronting-us-china-economicimbalances/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