McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 5 Who Gains and Who Loses from Trade?

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.1 – How Free Trade Affects Income Distribution in the Long Run: The Whole Chain of Influence

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.2 – Winners and Losers: Short Run Versus Long Run

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. The Factor Ratio Paradox

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. International Factor Price Equalization  With the shift to free trade: For each factor, its rate of return becomes more similar between countries. Under ideal conditions, its real rate of return is the same in different countries.  Example: Labor.  With no trade, the wage rate is high in the labor- scarce country. The wage rate is low in the labor- abundant country.  With free trade, the import of labor-intensive products pushes the wage-rate down in the labor- scarce country. The export of labor-intensive products pulls the wage rate up in the labor- abundant country.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure Shares of the World’s Factor Endowments, Early 2000s

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.4 – U.S. International Trade in Selected Products, 2004

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. China’s International Trade in Selected Products, 2003

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. China: Value of Exports and Value of Imports,

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure 5.5 – A Schematic View of the Factor Content of U.S. Exports and Competing Imports

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Figure The Factor Content of Canada’s Exports and Competing Imports