Trade Lesson 5 Activities
Trade Lesson 5 Hook: Who Governs Trade?

Time: 10 minutes
Skills: Holistic Thinking
Objective 5
Related Resources: n/a 

Why might countries want to control trade?

Who benefits, and who does not benefit, when a country controls trade?

What factors influences those benefits and detriments?

Trade Lesson 5 PowerPoint Presentation

Time: 60 minutes
Skills: Holistic Thinking
Objective 5
Related Resources:
- Krugman, P.R., and Obstfeld, M. (2008). The Instruments of Trade Policy. In International Economics: Theory & Policy, 8th Edition, Pearson-Addison-Wesley. (pp 182-211). Boston: Pearson. 
PowerPoint Presentation Global Trade Lesson 5.pptx

Read the relevant chapters in the recommended texts and look for online data for the latest figures of global trade.

Present the PowerPoint presentation. Questions are embedded in the slides. Use the glossary to define any unknown terms

Activities
Make a summary of the effects of the different instruments on trade policy.  Ask the students to think about how their opinion of the impact of these policies would change if they lived in China or in Brazil?

If you are asked to adopt a single trade policy, which one would you support and why?

Trade Lesson 5 Sanchez Electronic Devices—A Case Study

Time: 60 minutes
Skills: Holistic Thinking
Objective 5
Related Resources: n/a

Roberto Sanchez worked for 20 years as an engineer and manager in a factory in Dearborn, Michigan. After he left the company, he had a number of decisions to make such as: What would he make? Where would he locate his factory? Where would he sell his product?

After extensive research, Mr. Sanchez determined that he would build a small factory making a new product: a small tool useful for making personalized computer identification tags. Mr. Sanchez had experience in this sort of product, and had many friends in the United States and overseas who might be interested in the device. He built his factory in the middle of Cleveland, Ohio, where he knew he could get raw materials cheaply, the workers he would hire would be well-educated and hard-working, and transportation and communication networks would help him sell his device wherever it was wanted.

Mr. Sanchez prospered for many years. Although he sold most of his devices in the first few years to local computer dealers, over time he found the greatest interest in Japan and India for his product. Eventually, most of Mr. Sanchez’ devices were exported to these countries. His factory expanded its production, and he and his employees were amply rewarded.

Although competitors in these countries tried to make similar devices and sell them, no one could match Mr. Sanchez’ quality nor the service he provided. In addition, because the United States was in a recession at the time, the U.S. dollar was not worth as much overseas (compared to other currencies). A weak dollar meant that foreign purchasers would get more for their money, and they were therefore eager to do business with American exporters. American business people, on the other hand, could not import as much as they would have liked because their money was not worth as much in these countries.

A dilemma faced Mr. Sanchez, however, over the next few years. The continued success of his device encouraged others to make similar devices, and though not of the same quality, they forced him to lower prices in order to compete more effectively. Many of the workers had been with Mr. Sanchez since the beginning and their pay had been raised to the point where he had a hard time making much profit. Finally, as the U.S. economy prospered, the dollar began to increase in value, and importers in other countries found they could not make as much money reselling the items in their stores. In response to these challenges, Mr. Sanchez tried to find a way to lower his costs. Otherwise, he would have lost money and been forced to close down his business.

Throughout the development of his business, Mr. Sanchez had kept a close eye on government trade policies. Early on, the government encouraged Mr. Sanchez by helping him make business connections in Japan and India. The government forced importers with devices similar to Mr. Sanchez’ to pay a small tax on each item brought into the United States. This tariff increased the cost of the foreign goods, and helped Mr. Sanchez in the early days of his business.

Over time, however, U.S. importers began to complain about these tariffs. These importers claimed that the tariffs not only raised the cost of the devices made overseas, but since Mr. Sanchez could not make enough of the products in the United States, Americans were not able to get as many of the devices as they needed. The U.S. government eventually decided that, although Mr. Sanchez deserved to make a profit based on his hard work, American buyers should not have to suffer with the high import tariff. The government, therefore, eliminated the tariff.

Mr. Sanchez faced a real crisis. His sales to other countries were dropping rapidly because his device was no longer that inexpensive and Indian and Japanese business people had started to match his quality. Furthermore, his sales in the United States were no longer assured because now the Indian and Japanese devices were being sold in the United States for less than he could afford to make them.

Although Mr. Sanchez could not change the government’s decision to reduce the tariff, he could make some decisions to help his company. After looking at the facts, Mr. Sanchez regretfully closed his factory inCleveland and opened a new one inCiudad Juarez,Mexico, just over the border fromEl Paso,Texas. He found that he could pay skilled workers half of what he had to pay inCleveland. He also decided to reduce the quality of his product by buying less expensive parts and using a faster assembly process. With these substantial changes, Mr. Sanchez was able to reduce his costs, make a small profit, and stay in the business he loved. 

Case Study Questions 

  • Specialization means to produce those goods and services which you can make most efficiently and with the greatest cost advantage.  What good did Mr. Sanchez specialize in? What were his reasons?

 What are some examples of specialization in the global context? Are there particular regions or countries that have historically specialized in a product or group of products? What are the reasons for that historic specialization? Are there regions or countries that have only recently begun to specialize in a product or group of products? What changes in technology, trade, or other areas do you think lead to this specialization?

What types of decisions did Mr. Sanchez make? What types of actions did the government take? How did those decisions or actions affect the success or failure of the business? 

What factors might have led Mr. Sanchez to make a decision other than the one he chose? How would access to information affect the decisions made by Mr. Sanchez? 

  • To export means to sell goods or services to foreign markets. To what countries did Mr. Sanchez export his devices?

In some countries, export-oriented industries are the primary source of employment. What are the advantages and disadvantages of relying heavily on exports? How might a strong export-oriented economy affect employment? Can you think of an example in which a country relies almost completely on export of one good? How has this affected the country?

  • To import means to sell goods or services made in other countries in your home market. What products discussed in the case study were imported into theUnited States? How did this affect Mr. Sanchez? 

What imported products are available in your community? Is there any additional value associated with the importation of any of these products (i.e., French wine, Italian shoes, Japanese electronics)? What affect on a country’s culture might result from widespread availability of imported goods and services? 

  • A trade barrier is a governmental policy that affects the flow of trade. What trade barrier, put in place by the government, initially helped Mr. Sanchez? What happened when that barrier was removed? 

What are some products that have barriers or tariffs restricting their trade (imposed either by theUSor its trading partners)? How might a barrier based on communication, trust, and reluctance to import US products (such as inJapan) differ from a formal trade barrier? With this example, why might a removal of a formal trade barrier have little or no effect? What are the dangers of removing a trade barrier? 

  • What were the goals of Mr. Sanchez in opening his factory? 
  • What were the goals ofU.S.government policy when Mr. Sanchez opened his factory? How did these goals change over time? Why do you think they changed?
Trade Lesson 5 Trade Simulation Activity

Time: 60 minutes
Skills: Holistic Thinking
Objective 5
Related Resources: n/a

*Please note this activity requires advances planning and preparation and will take more than one class session.  This activity often works best when the students do one round the class before to get the hang of it.

Everyone is part of a group, numbered 1-9, that represents different regions of the world, and everyone is starting off with a tradable commodity, or two.  The goal is to be the individual with the most cards and/or most diversity of goods AND to be part of the group with the greatest diversity and/or goods.

RULES:

1)      Your envelope says if you are a traveling or stationary (home) merchant.  Traveling merchants go out to other regions to trade.  Stationary merchants stay in their region and must wait for traveling merchants to come to them.

2)      Below is a table showing which groups traveling merchants may visit during the six rounds of this activity (A-F).  Find your group number on the far left below, and then follow the chart across horizontally to see where you can go in each round.  For instance, group 4 can only trade with other members of group 4 during round A, but can trade with any person in groups 3,4,5, or 7 during round B.  

3)      You can trade with up to 3 people (time allowing) during each round, but each person you trade with must belong to the same group.  So continuing with the previous example, during round B someone in group 4 could make up to three trades, but they must decide before hand which one group (3,4,5, or 7) that they want to trade with. 

4)      The “cost” of each commodity is negotiable.  So, if you have ivory, you can ask for 3 spice cards for 1 ivory card, but the buyer does not have to agree.

Rounds A B C D E F
1 1 1 1 1 1,3 1,3
2 2 2 2,3 2 2,3 2,3
3 3 3,4 2,3,4,5,6,7,8,9 3 2,3,4,5,6,7,8 2,3,4,5,6,7,8,9
4 4 3,4,5,7 3,4,5,7 4 3,4,5,6,7 3,4,5,6,7
5 5 4,5,6 4,5,6 5 3,4,5,6 3,4,5,6
6 6 5,6,7 3,5,6,7 6 3,5,6,7 3,5,6,7
7 7 4,7, 8 3,4,6,7,8 7 3,4,7,8 3,4,7,8
8 8 4,7,8,9 3,4,7,8,9 8 3,7,8,9 3,7,8,9
9 9 8,9 3,8,9 9 8,9 3,8,9

KEY

1 = North America
2 = South America
3 = Europe
4 = Middle East and South West Asia
5 = North and West Africa
6 = South and East Africa
7 = Indian Subcontinent
8 = East Asian continental countries (China)
9 = Japan

Instructor’s Instructions

DAY ONE:

Pre-class :

1)      Make cards – different colored index cards, cut-up into smaller sizes work well.

  1. Put one category of good on each card.

                                                              i.      Make different quantities – so, for instance, someone can get 10 ivory cards while someone else only gets 3 clock cards.

  1. Mark some cards with colored dots.  The dots represent the often unintended effects or transmissions that the exchange of goods facilitated. 

                                                              i.      green= technology.  Regions learned or stole technology (or craftsmen) that let them replicate crafts or agriculture.  Put dots on some guns, chocolate, porcelain, coffee, cotton, etc – BUT NOT ON minerals –gold, ivory, silver, etc.

                                                            ii.      red =religion

                                                          iii.      blue = disorder (goods could destabilize) 

                                                          iv.      black = disease and death. 

2)      Divide cards up as shown in excel spread sheet and place in envelopes with group numbers on outside as well as S for stationary or T for travelling. Adjust for class size. 

3)      Be sure you have cards for most commodities left over  so you can add to people’s collections after round C.

 

CLASS:

1)      Distribute envelopes at random.  

2)      Have students try to guess what region of the world they are by their product(s).

3)      List out all products for each region (1-9), then have students guess what 1-9 represent.

4)      Ask who had wrong region, and discuss, stress artificial – so, for instance, gold could be many places.

5)      Pass out instructions, and charts for when everyone can trade and with whom.

6)      Explain rules and take questions.

 

 

DAY TWO:

Pre-class:

1)      In classroom, mark off 10 areas: one for each region plus one for afterlife/eternal nothingness.

Class:

1)      Go over rules again, take questions.
2)      Allow to trade within group (round A).
3)      Take first count of who is happy with what they have. (OPTIONAL)
4)      Move on to Rounds B and C.  (OPTIONAL) Tally happiness after round B.
5)      After Round C, explain the dots and put into action.

  • green technology dots on guns, chocolate, or coffee means an extra card for the person who has that card (tech spread); guano = more of agricultural/animal commodity from their region
  • red only means something if in Japan, then Japan is closed to trade in round E. Persons in Japan with red are out for rest of activity and goods redistributed – sit in afterlife area.
  • blue – disorder.  Explain how goods could destabilize.  Tally how many people in each group have a blue dot.  Make sure that good was not one they started with.  Any group with half or more of group having blue dots is closed to trade in round E.
  • black: disease and death.  See who has black dots.  Make sure the commodity e in their group.  If yes, they are fine, but if they acquired it, that person dies and their goods (minus the tainted one) are spread amongst group members – sit in afterlife area.

6)      Announce that 1 person (and it is best to choose specific individuals) from North America and 1 from South America are now traveling merchants. These represent European / Creole merchants.
7)      Ask who has guano cards.  Guano is a potent fertilizer.  Give that person(s) 1-2 additional cards based on which region they are from.   Explain really helped with food production, which helped economy overall, but as we don’t have food…

1: tobacco

2: nothing

3: nothing

            4: coffee

            5: nothing

            6: nothing

            7: cotton

            8: tea

8)      Give additional silver, gold, sugar, and tobacco cards to Europe due to colonization of the New World.  Can spread amongst European merchants, or only to those merchants who visited New World merchants in rounds B and/or C.
9)      Conduct Round D for internal trade.
10)  Round E, reminding people to sit out.
11)  Final round, tally happiness. (OPTIONAL)
12)  Everyone regroup by region, sitting in their area.      
13)  Take survey to find out

a)      Which groups ended up with which goods and how much of them.

b)      Group with most goods / capita wins prize.

c)      Group with most diversity  with wins a prize.

d)      Individual with most diversity?

e)      Individual with most cards?

14)  Have group brainstorm what is different and artificial about this trading scenario.

             Artificial:

                        -no customs, taxes, etc.

                        -no pirates, wars, etc.

                        -no differentiation between high-quality goods and low quality

                        -no food, which people had to trade for if only for ship journeys

                        -some products much more widely spread out – like indigo

Wrap up being sure points below are highlighted:

1)      it’s unfair in terms of starting points due to geography, natural resources, and world demand

2)       goods are always accompanied by intangible things (be they disease, ideas, religion, etc)

3)       value is relative  – different cultures will want different products and at different times

  1. Guano – became big in 19th century
  2. Coffee: banned at times in middle east, then big boom
  3. Tea: low quality that could stand long overland route made it expensive and unpopular in Europe, then huge boom
  4. Dyes: wall hangings with certain expensive colors, craftsmanship was a display of wealth that people coveted, and would give gold and silver for, etc.

4)      Consider connection between economics, culture, and politics

  1. For instance, how areas united by religion might band together against enemies, or religion lead to wars that slow trade and depress economic growth.

5)      If time, how 17th-18th century trade was and was not different from that today
   a) more government restrictions on trade than today
   b) but no international restrictions or bans
   c) continued inequality of resources and ability to acquire goods
   d) more geographic restrictions on trade
   e) value is slightly less relative today]
5) while it’s unfair, trade makes increased specialization possible and can increase both sides’ well being

POTENTIAL VARIATIONS

1)      work in customs officials

                        These individuals would set a tax, and could forbid individuals from trading.

They could also tax those coming in to trade

Add in currency?? 

                        -their success would be measured by overall  group, but also individual wealth

2)      Either drop North America or allow to trade with S America after round B.

3)      Add in pirates and navies.  (But then need some way to decide battles, and rock, paper, scissors is too random.)

4)      Add in higher and lower quality goods.  So, for instance, Europe has low quality porcelain, Asia has high quality (but expensive).

Assessment

Compare today’s activity to the reality of global trade flows in the seventeenth and eighteenth centuries as discussed in Armesto, chapter 20.  What historical constraints and/or opportunities were not represented in this activity?  In other words, what challenges or opportunities did merchants and states face that we did not model in this exercise?  Give three reasons (bullet points will suffice) and then choose one of those reasons and explain in a typed paragraph of at least 3 sentences how this exercise was misleading due to the absence of that constraint or opportunity.

Trade Lesson 5 Conclusion

Time: 5 minutes
Skills: Holistic Thinking
Objective 5
Related Resources: n/a

Who benefits from tariffs, export subsidies, import quotas, and voluntary export restraint? And who does not benefit from these trade policy instruments? Why?