Welcome MBA 628 Global Trade

1
Welcome!MBA 628Global Trade Finance

• Marriott School
• Professor Bryson
• TNRB 616, 422-2526
• http//marriottschool.byu.edu/emp/employee.cfm?emp
  pjb3

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Session 1

• Introduce Website
• Note that we will also use Blackboard
• Please review the syllabus before our next
  meeting, where you can ask any questions you may
  have about policies or procedures.

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Session 1

• Among the major tasks of the course
• CD presentations. I have five basic theory
  presentations on a CD available in the computer
  lab (360 TNRB). Just take in a blank CD.
• They are also available on line at sites listed
  in the syllabus.

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Session 1

• The CD does not represent extra work. You will
  have one class day off for each CD topic and
  quiz, following the plan in the course outline.
  That time is to prepare to take the related CD
  quiz on Blackboard.
• Advantages of the CD. You can study or review
  the topics at your own pace and review them as
  many (or as few) times as suits you.

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Session 1

• SECTION I, Introduction
• Discuss Why Economics.ppt, which partially
  explain my views on economics.
• An aside my views on Power Point presentations.
• The ones in the File Directory for the course
  are my notes, not reading assignments.

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Session 1

• Let us now take a moment to review why I am an
  advocate of free trade.
• Its simply because just about all economists
  are. You will review the theory from Smith and
  Ricardo through contemporary economists. The
  theory is clear and powerful.

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Why Economics?Its Nature and Functions

• Prof. Bryson
• Marriott School

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Significance of economics

• Before we got endowments and named business or
  management school after rich benefactors, we
  often named them
• College of Business and Public Administration or
• College of Economics and Business
• In Europe you often have Colleges of Economics
  and Business and, sometimes,
• Universities of Economics

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Significance of economics

• If you believe economics is important for
  business, why?
• Economics is to business what mathematics and
  physics are to engineering.

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Significance of economics

• What is the conventional definition of economics?
• Economics is the study of the allocation of
  scarce resources for the satisfaction of
  (unlimited) human wants.

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Alfred Marshall

• Economics is the study of mankind in the
  ordinary business of life.
• To you, what is the ordinary business of life?

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Alfred Marshall Economics is the study of
mankind in the ordinary business of life.

• Mans character has been moulded by his
  every-day work, and the material resources which
  he thereby procures, more than by any other
  influence unless it be that of his religious
  idealsreligious and economic influences have
  nowhere been displaced from the front rank even
  for a time and they have nearly always been more
  important than all others put together. Religious
  motives are more intense than economic, but their
  direct action seldom extends over so large a part
  of life.
• Marshall,
  Principles of Economics,p.1

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Why is economics so exciting?

• Economics is mathematics and more.
• It is at the core of most things we are
  interested in. Beards history, for example.
• Economics is a language
• Economics is a system of logic
• Economics is a method of
• prediction and forecasting

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Great Conceptions of Economics

• 1. Decision Optimization. Who optimizes?
• Consumers
• Firms
• Governments and NGOs
• 2. Markets
• 3. Organizations (the New Institutional
  Economics)

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Consider Gods Gifts as Resources

• Homes, cars,
• machines and tools,
• human capital, land,
• technologies,
• productive capacities

• Human life
• time for labor and service,
• scriptures,
• temples

Spiritual Temporal
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Consider Gods Gifts as Resources
The Lord has said Wherefore, verily I say
unto you that all things unto me are spiritual,
and not at any time have I given unto you a law
which was temporal. my commandments are
spiritual they are not natural nor
temporal. DC 29 34, 35.
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Consider Gods Gifts as Resources
We are stewards, owning nothing. (Psalms
241) The earth is the Lords, and the fullness
thereof the world, and they that dwell therein.
Our responsibility is to take care of (to
allocate) these resources well, increasing them
for the benefit of Gods children and for
building the kingdom.
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My Philosophy of Education

• 1. There are revealed principles of the gospel
  that are true. Happy are ye if ye do them.
• 2. There are foundation principles of theory.
  These are of particular interest when they are in
  harmony with divine principles such as agency,
  human dignity, regard for human life, etc.

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• 3. There are interpretations of theorys
  implications. These suggest how the theory should
  be applied. These interpretations are influenced
  by the individuals preferences, educational
  background, and experiences.

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• These interpretations may lead to a political
  orientation Americans call liberal. The
  philosophy here is concern for the little man and
  the disadvantaged and often implies
• well-financed social programs.
• Such interpretations may also lead to a political
  orientation of conservatism. The philosophy
  here is concern for personal liberty and
  independence, with limited government.

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1. Principles 2.Theory 3. Interpretation
Liberal and Conservative attitudes

• I am concerned about items 1 and 2. For this
  course the emphasis will be on item 2. I want you
  to understand the theory. The interpretation is
  usually a matter of family and previous
  educational experiences.

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Economics and Belief

• I want you to understand, not to believe economic
  theory.
• Science is the best set of hypotheses available.
  These should be accepted skeptically until the
  hypothesis can be disproved (rejected) or until
  a better hypothesis comes along.
• In science, hypotheses must be set up so that
  they can be rejected if proved untrue. We accept
  them only until someone is able to reject them.

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Economics and Belief

• We shall try very hard to aid the student in
  understanding certain economic models. We shall
  try not at all to convince him of their truth.
  Indeed it would be counter to our purposes to
  instill in the student belief in our models.
  Belief is appropriate to theology. Science
  requires understanding of the theoretical system
  that one employs coupled with skepticism as to
  its validity. We shall attempt to provide the
  reader with the understanding. We trust that he
  will provide himself with the skepticism.
• Cliff Lloyd, Microeconomic Analysis

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Economics and Abstraction

• Finally, consider the words of the Lord
• 78 Teach ye diligently and my grace shall attend
  you, that you may be instructed more perfectly in
  theory, in principle, in doctrine, in the law of
  the gospel, in all things that pertain unto the
  kingdom of God, that are expedient for you to
  understand 79 Of things both in heaven and in
  the earth, and under the earth things which have
  been, things which are, things which must shortly
  come to pass things which are at home, things
  which are abroad the wars and the perplexities
  of the nations, and the judgments which are on
  the land and a knowledge also of countries and
  of kingdoms (My emphases) DC 88 78, 79.

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On the Beauty of Markets and Trade

• Trade Synonymous with Markets
• Fundamentally, the case for free trade is the
  case for the market system. The benefits come in
  the form of greater realization of the
  efficiencies available from specialization, from
  more rapid technology transfer and more
  productive allocation of resources, from
  comparative advantage, and from the spur of
  competition. They show up in higher rates of
  economic growth, leading to higher wages and
  higher returns to capital, leading to higher
  standards of living.
• Larry Summers, Past President, Harvard
  University, Deputy Secretary of the Treasury,
  Clinton Administration

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Session 1

• Henry George was a very famous early American
  economist. His greatest work was Progress and
  Poverty, 1879.
• A little later he wrote a book on the topic of
  free trade, Protection or Free Trade An
  examination of the tariff question, with especial
  regard to the interests of labor. (1886)

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(No Transcript)
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• George found much wrong with the economic
  theories of his day, but he agreed with the
  growing tradition of free trade.
• Consider, as an introduction to the course, some
  of his ideas on the topic.

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• I have not only gone over the ground generally
  traversed, and examined the arguments commonly
  used, butI have sought to discover why
  protection retains such popular strength in spite
  of all exposures of its fallacies.
• Protection or Free Trade, p. 7

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NEAR the window by which I write, a great bull is
tethered by a ring in his nose. Grazing round and
round he has wound his rope about the stake until
now he stands a close prisoner, tantalized by
rich grass he cannot reach, unable even to toss
his head to rid him of the flies that cluster on
his shoulders. Now and again he struggles vainly,
and then, after pitiful bellowings, relapses into
silent misery.
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• This bull, a very type of massive strength, who,
  because he has not wit enough to see how he might
  be free, suffers want in sight of plenty, and is
  helplessly preyed upon by weaker creatures, seems
  to me no unfit emblem of the working masses.
• In all lands, men whose toil creates abounding
  wealth are pinched with poverty, and, while
  advancing civilization opens wider vistas and
  awakens new desires, are held down to brutish
  levels by animal needs.

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• Bitterly conscious of injustice, feeling in
  their inmost souls that they were made for more
  than so narrow a life, they, too, spasmodically
  struggle and cry out. But until they trace effect
  to cause, until they see how they are fettered
  and how they may be freed, their struggles and
  outcries are as vain as those of the bull. Nay,
  they are vainer. I shall go out and drive the
  bull in the way that will untwist his rope. But
  who shall drive men into freedom? Till they use
  the reason with which they have been gifted,
  nothing can avail. For them there is no special
  providence.
• Protection or Free Trade, p. 9

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• I propose in these pages to examine a vexed
  question which must be settled before there can
  be any efficient union in political action for
  social reformthe question whether protective
  tariffs are or are not helpful to those who get
  their living by their labor.
• The policy of protection is again raising its
  head. Here it is evident that the tariff question
  is the great political question of the immediate
  future. Protection or Free Trade, p. 9

34

• For more than a generation the slavery
  agitation, the war to which it led and the
  problems growing out of that war have absorbed
  political attention in the United States. That
  era has passed, and a new one is beginning, in
  which economic questions must force themselves to
  the front. First among these questions, upon
  which party lines must soon be drawn and
  political discussion must rage, is the tariff
  question.one thing or the other must be
  trueeither protection does give better
  opportunities to labor and raises wages, or it
  does not. Protection or Free Trade, p. 11

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• Protections Effects
• Protective tariffs are as much applications of
  force as are blockading squadrons, and their
  object is the sameto prevent trade. The
  difference between the two is that blockading
  squadrons are a means whereby nations seek to
  prevent their enemies from trading

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• Protections Effects
• protective tariffs are a means whereby nations
  attempt to prevent their own people from trading.
  What protection teaches us, is to do to ourselves
  in time of peace what enemies seek to do to us in
  time of war.
• Protection or Free Trade, p. 47

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• Protectionisms Bottom Line
• It is as natural for men to trade as it is for
  blood to circulate. Man is by nature a trading
  animal, impelled to trade by persistent desires,
  placed in a world where everything shows that he
  was intended to trade, and finding in trade the
  possibility of social advance. Without trade man
  would be a savage.

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• Where each family raises its own food, builds
  its own house, makes its own clothes and
  manufactures its own tools, no one can have more
  than the barest necessaries of life, and every
  local failure of crops must bring famine.

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• A people living in this way will be independent,
  but their independence will resemble that of the
  beasts. They will be poor, ignorant, and all but
  powerless against the forces of nature and the
  vicissitudes of the seasons. Protection or Free
  Trade, p. 51

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• Effects of Free Trade
• It is where trade could best be carried on that
  we find wealth first accumulating and
  civilization beginning. It is on accessible
  harbors, by navigable rivers and much-traveled
  highways that we find cities arising and the arts
  and sciences developing.

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• And as trade becomes free and extensiveas roads
  are made and navigation improved as pirates and
  robbers are extirpated and treaties of peace put
  an end to chronic warfareso does wealth augment
  and civilization grow. All our great labor-saving
  inventions, from that of money to that of the
  steam-engine, spring from trade and promote its
  extension. Trade has ever been the extinguisher
  of war, the eradicator of prejudice, the diffuser
  of knowledge.

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• It is by trade that useful seeds and animals,
  useful arts and inventions, have been carried
  over the world, and that men in one place have
  been enabled not only to obtain the products, but
  to profit by the observations, discoveries and
  inventions of men in other places. .
• Protection or Free Trade, pp. 53, 54
• Fini

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Session 2

• Fill out (non-required) information sheets.
• Major tasks of the course
• Team presentation and report. Organize in teams
  of five.
• Submit your presentation priorities

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Session 2

• Team presentation and report. Negotiate about a
  topic
• global role of some important country
• an international economic institution (World
  Bank, IMF, WTO, OECD)
• an international economic problem (the US
  payments imbalance, US and EU anti-developmental
  agricultural policies, etc.)

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Session 2

• Please submit your topics priority list with your
  team members and team name (I suggest names after
  some kind of electronic device).

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Session 2

• Major tasks of the course
• Team report.
• The final reports will all be submitted on
  November 30. To provide some preparation time
  (either for the final or the written report) and
  to provide the fifth CD day, there will also be
  no class on that day.

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Session 2

• Make a seating chart.
• Are there any questions on the syllabus?
• You should now begin to review the CD
  presentation Markets and prepare for the quiz.
• In class we will review the Power Points Balance
  of Payments and Foreign Exchange.

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Session 3

• Review team assignments.
• Take the CD quiz on Markets today.

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Session 3

• SECTION II. Trade Theory
• Review Power Points on
• Fixed and Floating Rates, and
• Exchange Rate Determination.

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Session 4

• Review semester schedule, which now includes
  class presentations.
• In the File Directory, see the Group
  Presentations folder. It gives examples of past
  presentations. Yours will be posted there in the
  course of the semester.
• Discuss Power Point Presentation on Comparative
  Advantage and
• Mercantilism

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Session 4

• Note that there is no class next session. Use
  that class time to complete your review of the CD
  presentation on Trade Theory and take the CD Quiz
  on that topic. Youll find the quiz in
  Blackboard.
• Review Power Point presentation on Mercantilism.

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Session 5

• Discuss Power Point Presentation on Trade Theory
  Genesis (See File Directory)
• Review BM Trade and Welfare.ppt
• Note that there is no class tomorrow! Use class
  time to take the CD quiz on Trade Theory.

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Session 6

• No class today. Use class time to complete your
  review of the CD presentation on Trade Theory and
  take the CD Quiz on that topic. Youll find the
  quiz in Blackboard.

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Session 7

• Discuss the global petroleum market on the basis
  of reading 11 in King. Discuss, as time permits,
  the reading by Telhami and Hill, "Does Saudi
  Arabia still matter?"     

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Session 8

• Trade policy discussion.
• Review steel protection policy    
• Discuss the Chinese trade imbalance problem

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Steel Policy The Good, the Bad, and the Ugly

• Many were very surprised when President Bush,
  expected to be an advocate for free trade,
  listened and responded to the arguments of the
  steel industry that steel from foreign producers
  was being dumped in the US market.
• To level the playing field, tariffs were needed
  for a period of time to give the US industry a
  chance to regroup, reorganize and cut costs to
  become competitive in fierce global competition.

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Steel Policy The Good, the Bad, and the Ugly

• The Bush administration responded by establishing
  steep tariffs for a period of a few years. The EU
  and other steel producers went ballistic.
• The tariffs were ultimately overturned by the WTO
  and abandoned.

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Steel Policy The Good, the Bad, and the Ugly

• Some were sure that the steel tariffs were
  imposed because Bush hoped to win the steel
  states in the next recession. (How well did US
  manufacturing like the tariffs?)
• Some contended that the exercise was one step
  back, two steps forward. (See Bergsten, A
  Renaissance for U.S. Trade Policy? in the GTF
  reader.) Bush did it to gain fast-track
  authority from congress.

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Steel Policy The Good, the Bad, and the Ugly

• What mistakes do Huffbauer and Goodrich think the
  Bush administration made in proposing to protect
  the steel industry?

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Steel Policy The Good, the Bad, and the Ugly

• One traditional argument for protecting an
  industry like steel is that steel is critical for
  national defense. Using what you have learned
  from Huffbauer and Goodrich, do you think failing
  to protect the US steel industry would harm the
  US defense?
• Why or why not?

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Steel Policy The Good, the Bad, and the Ugly

• What are legacy costs? Why are they important in
  dealing with the steel industry?
• Devise a non-protectionist national policy to
  deal with these costs.

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Session 9

• Trade and the environment
• Trade and labor standards

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Session 10

• Discussion on the WTO and Trade Policy.
• Review the CD presentation on trade policy for
  quiz in session 11.

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Session 11

• No class today.
• Take CD quiz on Trade Policy