A. Did you follow the still ongoing discussion about free trade in the recent election cycle? Do you thinkthat the USA is tending toward a mercantilist approach and likely to impose restrictions on foreign tradeover the next few years?B. Do you agree or disagree with Adam Smith that we are better off with some form of free trade, thanwould be the case if each country raised or lowered tariffs based on its own economic needs and politicalphilosophy? Provide a logical reason for your answer.Not at all Somewhat Completely1 2 3 4 5 6 7 8 9 10C. Thomas Freedman made the following statement in the “World is Flat”. He maintains that technologymakes it possible to compete with, or collaborate with anyone, anywhere in the world. Globalization, heargued is both inevitable and desirable. The winners says Freedman, will be the countries andcompanies that can respond quickly to change and that the loser will be those who are slow to do so.“Whatever our political and philosophical points of view we may have little option but to adapt to theglobal economy.” Do you agree or disagree?What is the reason for your answer? 3. THE HISTORICAL BACKGROUND OF FREE TRADEAdam Smith and Free TradeThe World is not just flat, says Thomas Friedman but, according to his more recent book, Flat, Hot andCrowded. Toward the end of chapter fifteen we are offered a glimpse of the more important trading blocs onthe planet. It is useful, to research the origins and functions of the World Trade Organization as well as tounderstand tariffs, dumping embargos and other barriers to international trade. The controversy of free tradeversus protectionism, ongoing in this election cycle, is not new. There was considerable discussion in theperiod leading up to the 2008 presidential election of "opting out" of NAFTA and indeed during this time theSenate failed to endorse a free trade agreement with Colombia even though all parties agreed it would be awin-win situation. In fact the free trade v. mercantilism debate goes all the way back to Adam Smith, whosepublication in 1776 of The Wealth of Nations was, not coincidentally, the same year that the Declaration ofIndependence was endorsed by the Continental Congress. Smith proposed that in the future, each countryor region should do what it could do best and most economically, so that all countries would benefit from freetrade. Look up the Smoot-Hawley Act of 1930 and examine the consequences that raising trade barrierscaused at that time. Among other measures, this act that raised tariffs to protect jobs in the US, was passedby Congress in retaliation to other countries doing the same thing, Rather than improving the situationhowever it exacerbated an already disastrous slide of the world economy into the great depression. Anotherkey factor was the increasingly grave situation in Europe.Germany in 1920's and 30'sThe cause of the immense acceleration of prices that occurred during the German hyperinflation of 1922-23seemed unclear and unpredictable to those who lived through it, but in retrospect was relatively simple. TheTreaty of Versailles imposed a huge debt on Germany that could be paid only in gold or foreign currency.With its gold depleted, the German government attempted to buy foreign currency with German currency, butthis caused the German Mark to fall rapidly in value, which greatly increased the number of Marks needed tobuy more foreign currency. This caused German prices of goods to rise rapidly which increased the cost ofoperating the German government which could not be financed by raising taxes. The resulting budget deficitincreased rapidly and was financed by the central bank creating more money. At the same time Germanyraised tariffs and imposed quotas in an effort to stem rising unemployment When the German people realized that their money was rapidly losing value, they tried to spend it quickly.This increase in monetary velocity caused still more rapid increase in prices which created a vicious cycle.This placed the government and banks between two unacceptable alternatives: if they stopped the inflationthis would cause immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order,insurrection, and revolution. If they continued the inflation, they would default on their foreign debt. Theattempts to avoid both unemployment and insolvency ultimately failed when Germany had both." Eventuallythe situation was brought under control by a new government headed by Gustav Stressmann. But themeasures taken were seen by the German people a defeat, ultimately this setting the stage for the rise of theNational Socialist (Nazi) party, World War II and all that it implies.The GATT and the WTOPreparing to rebuild the international economic system while World War II was still raging, 730 delegatesfrom all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire,United States, for the United Nations Monetary and Financial Conference, also known as the BrettonWoods Conference. The delegates deliberated during 1-22 July 1944, and signed the Bretton Woodsagreement on its final day. Setting up a system of rules, institutions, and procedures to regulate theinternational monetary system, these accords established the International Monetary Fund (IMF) andthe International Bank for Reconstruction and Development (IBRD), which today is part of the WorldBank Group. The United States, which controlled two thirds of the world's gold, insisted that the BrettonWoods system rest on both gold and the US dollar. Soviet representatives attended the conference butlater declined to ratify the final agreements, charging that the institutions they had created were "branchesof Wall Street."[¹These organizations became operational in 1945 after a sufficient number of countries hadratified the agreement. Today this has developed into the General Agreement on Trade and Tariffs (GATT),administered by the World Trade Organization (WTO). In turn in past 50 years we have seen the creation ofmultiple "free trade" agreements such as NAFTA and what has now become the European Union (EU).While the system is an admittedly flawed instrument, now showing some strains, such as the disagreementover refugee policies in the EU, it is arguably far superior to the conditions that prevailed in the nineteenthand first half of the twentieth century, when trade war led inevitably to hot war.4. USE THESE THREE QUESTIONS TO FRAME YOUR DISCUSSION BOARD COMMENTSA. Did you follow the still ongoing discussion about free trade in the recent election cycle? Do you thinkthat the USA is tending toward a mercantilist approach and likely to impose restrictions on foreign tradeover the next few years?

"The below questions have been answered in a general and unbaised manner."International trade refers…

Answered: A. Did you follow the still ongoing…

14th Edition

ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC