|INSTRUCTOR DISCUSSION NOTES:
Open Up a Little Wider, America
1.Discuss some of the protectionist measures available to American lawmakers to reduce the trade deficit with China. Which do you think is most fair or effective?
The two major tools mentioned in the article are import quotas and tariffs. An import quota sets an absolute numerical limit on the quantity of a product that may enter the country that has established the quota. Quotas are relatively common in developing countries that are trying to protect their infant industries. Because it restricts the volume of imports ( a supply side issue) the import quota raises the domestic price of the imported commodity and makes the domestically produced good more competitive.
2.How does the undervaluation of the Yuan in relation to the dollar add to the trade deficit?
The undervaluation of the Yuan in the exchange market for currencies makes Chinese goods relatively less expensive and American goods relatively more expensive. This condition means that Chinese goods are more desirable to buyers all over the globe, and American goods are less desirable. The result is a trade deficit which means more goods are imported into the U.S. than are exported from the U.S.
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