Sep 25 2008

What’s Korea’s “beef” with the US on free trade?

“This post was originally published in April, 2008. It has been re-published today for the benefit of my year 2 IB Econ students, who are currently studying barriers to free trade.

Bloomberg.com: Economy – Korea Beef Deal Won’t Yield Trade Vote

Free trade: everyone either loves it or loves to hate it.
South Korea and the US have been in negotiations for a landmark free trade agreement for years. Korea, however, has had a “beef” with US beef imports since 2003, when a case of Mad Cow Disease gave Korean officials the jitters and all imports were halted.

Even though Mad Cow has disappeared from American beef, the ban has remained, making it difficult for negotiators to come to any major agreements on the reduction of tariffs and other barriers to trade in other markets in which the US and Korea trade. Just last week, South Korea removed the beef ban, giving some analysts hope that a free trade deal may soon be agreed upon.

President Bush signed the agreement last year but has hesitated to pass it on to Congress; where certain Democratic politicians have refused to approve the agreement until S Korea removed the beef ban. Now that the ban has been lifted, however, it appears that the issues keeping an agreement from being reached may run deeper than the simple beef ban:

In addition, Ford Motor Co., unions and Democrats, including both Hillary Clinton and Barack Obama, all say the accord must be reworked to address what they call South Korea’s barriers to U.S. manufactured goods.

“I understand there are foreign policy considerations, but this is too important for us,” Stephen Biegun, vice president for government affairs at Ford said in an interview earlier this month. “We don’t see any sign that they are ready to change.”

Levin, who represents autoworkers in suburban Detroit, said the accord will need to be changed to address what he calls South Korea’s non-tariff barriers to U.S. manufactured goods, especially autos.

Clinton, in a response to questions from the Pennsylvania Fair Trade Coalition, said the agreement with South Korea “will cost America jobs.”

The S Korea / US Free Trade Agreement should bring a boost in trade between the two countries:

The U.S. is South Korea’s second-largest export market behind China, with shipments totaling $45.8 billion in 2007. Imports from the U.S. last year reached $37.2 billion. The trade agreement would eliminate or reduce tariffs on a wide range of goods including automobiles, vegetables and electronics.

Through free trade there are winners and losers. This is a theme we’ve explored in some depth already during our International Economics unit. The winners, in the case of the S Korea/US FTA will likely be manufacturers in S Korea and service industries in the US. Judging by Ford Motor Company’s response to the FTA, we can assume that American manufacturers will be losers from the accord.

Does this make it bad, however? According to macroeconomic theory, no. The removal of tariffs on imports from S Korea will force American manufacturers to become more competitive and achieve greater efficiency, both which will result in a more efficient allocation of resources in both S Korea and the US. If Ford, for example, sells fewer cars because of in influx of high quality, affordable Korean automobiles, then Ford may be forced to shut down some of its plants in the US. This will lead to the loss of American jobs, just as Hillary Clinton claims it will.

But in the long-run, America as a whole should be better off for it. Manufacturers in the US will focus more on capital intensive goods such as industrial equipment, the manufacture of which requires highly skilled labor, which America has in abundance. In addition to industrial equipment and other high skilled manufactured goods, the US service sector should benefit from freer trade with S Korea.

With beef being resolved, the U.S. banks, insurance companies and other services companies that stand to gain the most from this accord are gearing up their lobbying efforts.

Beef “has been our biggest obstacle in having a meaningful dialogue on the benefits of this agreement,” said Matt Niemeyer, vice president for the business insurer ACE Ltd. and a former U.S. trade official. “It’s now time to work with Congress to find a way to move this important agreement this year.”

As any student of economics knows by now, politics and economics don’t always mix well. The opposition to the S Korea/US FTA among Congressional Democrats is more political than it is economic. Jobs will be lost, that’s true, but overall trade between two technologically advanced, developed countries like the US and S Korea should do more for improvements in efficiency and in resource allocation than it will in harm for a handful of American workers who may find themselves out of work due to greater demand for imported automobiles.


*A tariff on Korean automobiles results in the following outcomes:

  • The quantity demanded of automobiles is less than it would be without a tariff (Q4 rather than Q3)
  • The quantity supplied by American auto manufacturers is greater than it would be without the tariff (Q2 rather than Q1)
  • The difference between Q2 and Q1 represents an overallocation of resources in America towards automobile manufacturing.
  • The domestic quantity demanded exceeds the domestic quantity supplied. The difference (Q4 – Q2) is made up for by imports from S Korea.
  • The government earns revenue equal to the area of the yellow rectangle (amount of tariff x number of cars imported)
  • Society experiences a loss of efficiency (deadweight loss) equal to the combined areas of the green triangles Y and X. This is consumer surplus lost, accounted for by the higher price paid by American consumers imposed by the tariff.

In the model above, the removal of a tariff on Korean automobiles will result in a decrease in output by American firms from Q2 to Q1, an increase in imports from Q4 – Q2 to Q3 – Q1, and an increase in consumer surplus, efficiency, and better overall allocation of resources in America.

Discussion questions:

  1. How does the graph illustrate the concept of “winners and losers from free trade”?
  2. Who gains and who loses from free trade with the US within Korea?
  3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…
  4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

144 responses so far

144 Responses to “What’s Korea’s “beef” with the US on free trade?”

  1. Bryan_DiLauraon 18 Oct 2011 at 2:03 am

    1.How does the graph illustrate the concept of “winners and losers from free trade”?

    This graph shows how that because of the tariff, the domestic producers are being protected from free trade (and becoming the losers). In true free trade, there would be no tariff, so the domestic producers would be the losers, while the consumers and foreign producers would be the winners.

    2.Who gains and who loses from free trade with the US within Korea?

    The domestic producers (like Ford) would lose, as well as the Korean government. The people of both Korea and the US would gain, as well as Korean producers. People in Korea would benefit because of the increased competition because of the access to a bigger market, giving further efficiency.

    3.Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes. While there may be certain areas where the US will lose employment in (such as car producing for Ford), because there is no longer any boundaries to trade with Korea, there could be another industry where the US could flourish, creating even more jobs than what was available before. I think the article mentioned the industrial machinery production industry. This could tap into the amount of skilled workers that the US has, while getting away from the auto industry, which Korea has a comparative advantage for.

    4.Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    I feel that it is partially because most politicians are very short-term minded when it comes to economics. Because most of the things that they do will only effect their job for (at least in the US) about 8-10 years, they only like to do things that will give them an immediate reaction in the economy. This isn't always in the best overall interests of the economy. Free trade deals can sometimes be kinda bad at first, before the economy readjusts itself. Politicians want to avoid that at all costs.

  2. Bryan_DiLauraon 18 Oct 2011 at 2:07 am

    @nchaneliere

    I somewhat disagree with you for your answer to the last question. Decisions like this for free trade agreements often end up being better for the people in the country than they were before. I feel that it is just the politicians fear of the short term fallout from their decisions.

  3. HEppleron 18 Oct 2011 at 3:08 am

    How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph illustrate the concept of winners and losers in free trade multiple ways. The consumer will be a winner because the graphs shows the consumers will be able to purchase automobiles at a lower price, a lower price for a consumer makes them a winner. The losers in this situation would be domestic producers who would be receiving less business because their goods are more expensive than south Korean goods. The south Korean producers would also be winners because they will be able to export more goods increasing profits. The graph also shows that better allocative efficiency will be achieved benefiting the american market in the long run because there will not be a dead loss on the market allowing those resources to be employed in a more productive manner creating a winner in society as a whole.

    Who gains and who loses from free trade with the US within Korea?

    Within Korea, the manufacturing industries win because South Korea can manufacture goods more affordably than American firms creating increased profits for the manufacturing firms. The service industries will suffer because the US has the comparative advantage; therefore, the consumers will begin to leave South Korean firms in favour of cheaper American goods.

    Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    It is a possibility to have new jobs created in America. American has the comparative advantage in some areas such as the service sector. The advantage will result in the increase of the market and firm size. As the firms and market increase, more people will need to be employed in order to create more goods; however, the number of jobs added to these markets does not necessarily exceeded the number of jobs lost to the foreign markets. There is also the possibility that capitol intensive markets and not labour intensive markets will experience the greatest growth resulting in limited job creation. While there is the possibility for job creation, it is a gamble for the government.

    Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians oppose such deals because they are primarily concerned with the short term benefits and problems. Politicians are elected based off their policies and the results; therefore, if in the short run, free trade causes job loss, the politicians will not be re-elected. There are also problems involving other policies by the foreign government. Politicians must consider what the government they are trading with represents. For example, the US will not trade with Cuba because of ideological differences. Also, free trade deals do not guarantee an improvement in the economy. The government is taking a chance, and not all politicians believe the chances are favourable or even believe in the ideology of trade.

  4. HEppleron 18 Oct 2011 at 3:11 am

    @ nchaneliere

    Good post. I have a question about your opinion in question two. Do you think that the increased presence of American cars on the South Korean market will have a profound impact even though they are more expensive? If so, do you think getting rid of the tariffs will help the American car industry? Just a point of clarification.

  5. Aaydoganon 18 Oct 2011 at 9:19 am

    1.) How does the graph illustrate the concept of winners and losers from free trade?

    The more the price of Korean cars is, the more the American consumption of Korean cars will be and also the price of American cars will stay the same. The American consumers would like to buy from the Korean cars and so the demand for Korean cars will increase as the demand for American cars decreases. Thus, while the American manufacturers become losers, American consumers are the winners from free trade, when we consider the concept of tariff.

    2.) Who gains and who loses from free trade with the US within Korea?

    Korea will gain from free trade as the demand for its automative sector will be chosen, so Korean cars would be much more demanded in the USA. However, Korea will lose from beef trade with US as beef is more demanded in US markets in Korea. So in total, the losers from free trade is the beef producers in Korea and also the car manufacturers in the USA.

    3.) Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    In the long run, domestic markets in USA may change their minds as they couldn’t profit from automotive sector, they will try new sectors instead of automotive. So the efficiency of domestic firms will be increased and so the new sectors that are found lately may create new job opportunities.

    4.) Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    All the efficiency from free trade results in long run which would not work for politicians. Politicians would like to make difference in short run, since they want to be elected, so that what they do is being limited in short run and so they will develop the infrastructure.

  6. Ozge Elifon 18 Oct 2011 at 9:25 am

    1.How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph shows the effects of tariff to American car markets. People will be willing to buy Korean cars because the price of them will be decreasing and American products will stay the same. Thus, we say that consumers and Korean producers are the winners of this competition and American producers are the losers.

    2. Who gains and who loses from free trade with the US within Korea?

    Free trade between Korea and US means that cheaper Korean products in US and cheaper US products in Korea.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain.

    There will be a change in the allocation of the US’s resources, so that there will be an increase in jobs which will result in more people employed.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians are dealing with short-run results instead of looking for long-run results. Thus, they will not give importance to the positive long-run results such as allocation of resources, efficiency and employment opportunities. Since they are concerned about being chosen, they will think about negative short-run effects.

  7. jjowetton 18 Oct 2011 at 12:49 pm

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph in the blog presents the effects of a tariff which is placed on imported Korean cars into the US. Consumers in the US are the most direct winners from free trade as they will have to pay lower prices for cars. With the tariff in place, the world supply of cars is decreased and prices are pushed up. Tariffs therefore disadvantage consumers. However, the price of a car is still cheaper (with tariff) than when there was no free trade. Consumers are therefore definite winners from free trade. On the other hand, American producers will be definite losers from free trade. With free trade, the world price of cars appears a lot cheaper than that of domestically produced cars in the US. Therefore, consumers will opt for the cheaper and more efficient option: being Korean imported cars. This means that American producers receive less revenue and are eventually forced to make job cuts. This creates unemployment and eventual closure of many American car manufacturing firms.

    2. Who gains and who loses from free trade with the US within Korea?

    The main winners from free trade with the US, within Korea, are Korean car manufacturers. These firms experience ever-increasing revenue as so many American consumers are demanding their cheaper and more efficiently produced cars. Furthermore, Korean consumers will benefits from low prices placed on goods imported from the US.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes, it is possible. Domestic firms in the US that produce goods and services that are being imported from other countries (ie. Korea) via trade: will lose out. They will eventually shut down unless they increase efficiency and lower their prices, or some forms of protectionism is put in place (ie. tariffs). This will create structural unemployment. However, domestic firms in the US that are producing goods and services that are being exported to other countries (ie. Korea importing American beef) via trade: will hugely benefit. Many jobs will created as the industry flourishes with increased revenue and efficiency.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    As the article said, politics and economics do not often mix well. Politicians often (and quite rightfully) act in the interest of their country. Sometimes, they act only in the interest of their country, primarily its citizens: probably because they are the ones that vote. Politicians often oppose free trade because it results in the loss of jobs (structural unemployment). They often act on a short-run basis rather than a long-run basis. Unfortunately, free trade does not present many short-run benefits and is therefore often disregarded. It often takes time, for free trade to have an impact on a population

  8. jjowetton 18 Oct 2011 at 12:52 pm

    # Bryan_DiLaura

    I strongly agree with all of your answers. I feel as though we agree on most concepts ad to who gains and and who loses from free trade. Very strong analysis!

  9. twilliamon 18 Oct 2011 at 1:28 pm

    1)The graph shows the tariff imposed on U.S. cars which cause more consuemrs to demand for Korean cars as they are cheaper.

    2) The lossers in this case will be the Americans producers because more consumers demand for cheaper products from Koreans instead of their domestic products (U.S.).

    3) Yes, its possible because int he long-run, US will focus more on production which involve highly skilled labor since Americans employees are mostly highly skilled according to the text. The production of industrial equipment will benefit US in free trading with S Korea.

    4) Politicians are only concern with their image and status. They are searching to solve a problem which is in the short-run, and seek for government's attention by producing a good result by solving a problem in the economy. Since free trade will result in so many benefits for the country, there will be lack of opportunities for politicians to search for problems for them to solve.

  10. twilliamon 18 Oct 2011 at 1:30 pm

    @# Behiye Dasdemir

    we sure have different views on the 4th question especially different politicians from different country have different views, but yours is a good explanation.

  11. nflanikenon 18 Oct 2011 at 2:43 pm

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph illustrates different winners and losers. First of all the consumer will be a winner since they can buy goods at cheaper prices. Because of free trade Korea can sell goods at cheaper prices and thus the consumers are winners. The producers of these goods in South Korea will also be winners since free trade opens up their maximum output and since they can sell their cheaper goods in the US they are the winners. The losers however are the domestic producers. The graph shows a decrease in domestic supply since the global supply is at a lower price than the original equilibrium price. Since domestic producers can only produce fewer goods at a lower price they do not make as much money.

    2. Who gains and who loses from free trade with the US within Korea?

    Within Korea the service sector will lose and the manufacturers in Korea will win. The service sector in the US has a comparative advantage to that of Korea’s service sector thus the US will take over more of that market. On the other hand Korea’s manufacturing market will be the winners since they can produce goods at cheaper rates than the US can. Korea will be able to export its manufacture goods at cheaper prices and thus win in that category.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes it is possible but it is not guaranteed by any means. As I stated above, the US has a comparative advantage in the service sector over Korea. If the US was able to build off of this comparative advantage they might be able to create jobs. This would require that the US creates more jobs in the service sector if they were to switch their focus to that sector but at the same time lose fewer jobs to the manufacturing sector in Korea. If the US lost more jobs to these foreign markets they would not be able to create jobs.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians oppose free trade deals usually because they are more “narrow minded” so to say. One of the biggest problems that the US government is having is that politicians are unwilling to find a happy medium. In this case they are unwilling to settle for anything less than selling all types of beef in Korea. Instead of starting off with certain age beef and slowly increasing the types of beef exported they want to export all types of beef. Politicians look at the short term more often because that is what voters will see when they are up for reelection. If voters have not had a chance to see the long term benefits of a compromise with free trade agreements, the agreement serves little purpose to the politicians, thus they aim for short term, and fast, improvements.

  12. nflanikenon 18 Oct 2011 at 3:00 pm

    @jcarreno

    You briefly mention that economic gains tend to happen in the long run and voters will only vote to reelect a politician if they have improved the economy in the short run. Do you think that lengthening politicians' terms will allow them to implement long term policies, which will benefit the economy more. In the US many politicians can only spend a couple of years in their position before they start running for their candidacy again so they are always concerned with immediate results.

    Noah

  13. Huanni Wuon 18 Oct 2011 at 3:43 pm

    1) On the graph the yellow area indicates tax revenue of the American government. Once the trade barriers are removed there will be a loss of tax revenue and thus the U.S. government is the loser.

    The green area indicates the American consumer and supplier surplus which is lost under the tariff imposed by the U.S. government on imported automoblie. Once the tariff is removed, the social welfare is regained.

    2)The consumers especially are the winners as they also enjoy the world price of automobile which is less than the domestic price.

    The domestic suppliers, however are the losers since they are again forced to lower down their prices and share the market with Korean competitors.

    The Koeran exportors are the winners as they can again benefit from economies of scale from massive production. The larger quantity of export allow them to increase revenue.

    3) The will be some jobs available from the opening trade with Korea in the States. As the article indicates, there will probably more job opportunities in service industries. Specialization will always decrease jobs in one field and creates some in another field in which the country has stronger comparative advantages.

    4) The politician cares about the voice of majority which in this case is represented by Amercian workers. They concern about this because it determine their reputation and political position. If millions of automobile workers are unhappy about lossing their jobs due to the opening trade and dislike this politician, it make shakes the politician's position. However, the increase in efficiency is something that cannot be seen in short-term, cannot be perceived easily. Those invisible benefits seem not able to bring them much good reputation. What's more, even though there might be creation of jobs, those jobs are unlikely prepared for the ones who've lost their jobs. Opposition from the automobile manufacturers will still influence the politician.

  14. Huanni Wuon 18 Oct 2011 at 3:56 pm

    @nflaniken

    I especially like your comment about "Politicians look at the short term more often because that is what voters will see when they are up for reelection" and I agree that politicians are more fond of short-term benefits as that concerns how the people view them.

  15. Quinn Richardsonon 18 Oct 2011 at 4:01 pm

    1.The fact that the world price for this good is lower than the domestic price shows that there are winners and losers in this free trade situation. In this particular situation the winners from free trade are the foreign exporters as they have the comparative advantage in the production of this good shown by their lower prices. They, as a result, assume most of the domestic demand (Q1 to Q3) while domestic producers only assume 0 to Q1.

    2.Within Korea, the manufacturing sector will probably be the sector to gain from free trade with the US. They are able to offer products at a lower price than their American counterparts. However, Korea may experience some losses as well. The US may have the comparative advantage in the financial and service sector allowing for US firms to assume much of the Korean domestic demand. The consumers of Korea will also gain from free trade as they will be offered lower prices.

    3.Yes this is very possible. Although the Americans may not have the comparative advantage in the manufacturing sector, they may have the comparative advantage in some other sector. If wasted resources previously allocated to the manufacturing sector are then allocated to the more efficient sector, they could take full advantage of this new demand opportunity from free trade. This will ultimately lead to this sector expanding and creating jobs.

    4.The main opposition to free trade comes from the threat of unemployment. It will not look good if many are unemployed as a result of a decision made by politicians. And often there is a lag between unemployment and new employment opportunities opened up as a result of free trade. Generally it is the short run outcomes of decisions made as this usually determines whether they will be re-elected or not. This is despite the fact that these decisions might be optimal for the long run.

  16. Quinn Richardsonon 18 Oct 2011 at 4:09 pm

    @twilliam

    I agree that despite what politicians may say, the implementation of free trade does benefit the economy as a whole in the long run. It allows for the more effecient allocation of resources as well as the boosting of employment in these sectors. I think, however, that the reasoning behind proventing free trade politically is that in the short run, it might make the polititians look bad especially if their constituents are involved in the industrial sector. I don't think it is because they are afraid of a lack of problems to solve once free trade has had its opportunity to grow the economy.

  17. tsekineon 18 Oct 2011 at 6:03 pm

    1. I think the graph indirectly illustrates the concept of “winners and losers from free trade” in the sense that every small aspect would lead to a “winning” situation, as well as a “losing” situation i.e. benefits and limitations of free trade of the US automobile market. For example, the reduction/removal of tariffs would mean “an increase in imports from Q4 – Q2 to Q3 – Q1”, which would suggest that consumers are more willing to buy the imported automobiles, which then results in a loss of jobs for workers in the US automobile industry (this would be a “losing” situation for the workers in the US automobile industry). A “winning” satiation could be the fact that the removal of tariffs would lead to an increased efficiency and resource allocation (as shown by the combined areas of the green triangle, X and Y), this would benefit both countries.

    2. Within Korea, the Korean automobile industry would benefit the most out of this free trade agreement; they will be the “winners” as they are able to export their automobiles without any concerns of trade barriers. However the beef industry in Korea would “lose”, as the opening up of free trade would allow American beef industry (which is rather strong) to enter the market, and thus consumers may want to consume the cheapest alternative.

    3. It is possible for a free trade agreement with Korea to create jobs in America. We can take the American services industry as an example, as free trade opens up, America can reduce the production of automobiles and specialize more in the service industry. This would lead to the American services industry to recruit and acquire more employees. However it is most likely that there will be a lot more unemployed workers than the amount of jobs available/created. Furthermore, certain service industry would require special skills and training, which workers in the automobile industry may not possess. Therefore it may either cost more than what is planned (for training and such), or leave a lot unemployed.

    4. Politicians oppose free trade agreements simply because they over-look the benefits and advantage the country (both countries) can gain over the long run, they only look at the short-term effects. Also, if we think about it, not many people would know all the logic behind free trade (efficiency, allocation in resources, etc). Most people are focusing too much on the employment/unemployment/job aspect of economical decisions. So in conclusion, politicians oppose free trade agreements, simply to keep their image strong and want to be “well-liked”.

  18. jackson.moteon 18 Oct 2011 at 6:10 pm

    #nflaniken

    I agree with your answer to question 3. It's very often that nothing is guaranteed in economics, especially if it involves creating jobs. If imports decrease, this will increase jobs domestically but having a fair imports is often healthy for an economy because it can keep prices down.

  19. jackson.moteon 18 Oct 2011 at 6:21 pm

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph illustrates the concept of "winner and losers from free trade" by showing the different sectors of revenue. The yellow section known as the Tariff Revenue goes straight to the government in the form of revenue. However the green sections labelled X and Y are losses in government revenue. This directly affects the revenue from the government's tariff indicated by the yellow area. The section between Pt and Pw to left of Y indicates domestic revenue. This graph illustrated this concept by showing the different areas of revenue. The tariff illustrated could be beneficial or possibly detrimental to this economy.

    2. Who gains and who loses from free trade with the US within Korea?

    Within Korea, the manufacturing industry will benefit from free trade with the US. Low quality automobile producers within South Korea will lose in this situation because the US will import more high quality automobiles than they will low quality automobiles.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    It is very possibly however it could backfire for the US. If the US decided to import more high quality foreign automobiles from South Korea, US automobiles companies such as Ford may be forced to lay off workers because of a decrease in production due to a loss of demand for Ford automobiles. However this free trade could increase jobs in the United States because it would create competition in the auto industry.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians oppose free trade deals that would results in improvements because if these free trade deals do not go as planned, this would result in the blame being put on them. An increase in jobs looks better than a decrease in jobs when running for re-election.

  20. tsekineon 18 Oct 2011 at 6:42 pm

    To: Quinn Richardson

    For your response to the second question, I have not considered the service sector in Korea being the “losers” while writing my own response, good point there.

    I completely agree with your last response. Also, a very good point you brought up about the time lag between unemployment and new employment.

  21. Manuel Rivason 18 Oct 2011 at 7:37 pm

    The graph shows how tariffs increases the lower price, and thereby the better one for consumers. Thereby the main losers will be consumers which will lose the opportunity to consume cheaper products produced by more efficient companies. It illustrates the concept of winners and losers as it represents the different effects of these policies, showing who will have benefits and who loses.

    The ones who gain are the less efficient Korean companies as they will not have to face the more efficient American competition, and thereby be able to exploit a bigger percentage of the market without needing to invest in research in order to be more aggressive with international producers. The losers could be American companies, in some way, even though they still have many markets where to export their products. The main losers would be Korean consumers.

    It could be possible. It is true that American manufacturing companies would have to face new competition from more efficient Korean firms. But America has an absolute advantage in their service companies, which would find a new market to exploit in the Asian country; thereby they would expand and demand more workers.

    I believe it happens because if the state opens it´s boundaries it will create benefits for the full world economy, due to a better allocation of resources… but it could damage some of the national industries, especially in the short run, and this may bring population disagreement and lose of votes.

  22. Manuel Rivason 18 Oct 2011 at 7:43 pm

    To # jackson.mote

    I do not really catch your second point. I mean, Korean automobile producer are supposed to be more efficient than American one, thereby the quality is more a less the same, but the prices of the Asian offer are less due to a better production which decreases the costs of production. Thereby the loses would be the American company as the Korean product would be more demanded thanks to the qualities above named

  23. jcuervoon 18 Oct 2011 at 7:47 pm

    Julian Cuervo

    1.) The graph illustrates the concept of “winners and losers from free trade” because it represents the winners and losers through the yellow and green regions, respectively. The winner is represented in the yellow region.

    2.) From free trade, the people who gains is Korean automobile industry will gain from free trade as both Korean and American consumers will be more likely to buy Korean cars because they are produced more efficiently and at a lower price. Korean consumers will also gain because they will be able to purchase more goods at lower prices. The losers are the Korean politicians and diplomats. The Korean government will lose because it will increase political tensions with the US because they are their number two biggest importer.

    3.) A free trade agreement could actually increase jobs in America because the Korean imports are used by Ford car producers to make cars. So, even though there will be a decrease of industrial equipment production in the US, the actual US car-making companies like Ford will see their supply increase, which will open up more jobs in that market.

    4.) Politicians oppose free trade deals that would result in such improvements, allocation of resources, and even employment opportunities for American workers because there are also political, social, and military aspects involved. Politicians don’t want their country to get too dependent on another country in a certain industry because this could cost economic and military problems in the long run. In times of war for example, a country that is too dependent on a foreign industry will hurt the country if the war is a total war, meaning that a country has to shift its industrial purposes to war goods. Also, politicians want to have a sense of nationalism for the country and will want them to have their own stable and powerful industries, not depend on another.

  24. jcuervoon 18 Oct 2011 at 7:47 pm

    # Dennis.echl.f09

    I liked and agreed with all your answers. For number 1, I agree that the price of Korean cars decreases and the price of American cars remains stable, it follows that there will be an increased consumption of Korean produced cars. I also really liked your answer to number 4. It is important to note that politicians are only in office for a short period of time, so their success depends on the short term successes and not the long term successes. An example is Franklin Roosevelt’s popularity for his role in helping the US survive the Great Depression in the late 1920s and early 1930s.

  25. Ccolbergon 18 Oct 2011 at 9:35 pm

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    The above graph demonstrates the US automobile market with tariffs. If tariffs were removed, and the market existed with free trade, the winners would be consumers and in the long run American companies, whereas the losers would be the government and some workers. The graph shows that if the tariff were eliminated, price would move down from Pt to Pw, meaning that consumers could buy the good at a lower price. Furthermore, in the long run American companies would be forced to become more efficient and to better allocate their resources. The elimination of the tariff would however cause some people to lose their jobs as the supply from overseas would be greater. Finally, the yellow rectangle would be eliminated, meaning that the government would lose the revenue that they were making off of the tariff.

    2. Who gains and who loses from free trade with the US within Korea?

    If free trade was allowed between the US & Korea, than in Korea the car manufacturers would gain whereas beef manufacturers would lose. Car manufacturers would have more opportunity to sell their cars overseas and come make a higher profit. Beef manufacturers would loose out since Korea could import more American beef again.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes, it is entirely possible that a free trade agreement with Korea could create jobs in America. While the US might lose out in some industries, they could gain in industries where they have a comparative advantage. As the article states America has an abundance of highly skilled labor and America could shift its focus to manufacturing that requires this labor, thus creating new jobs.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    One reason politicians may oppose free trade deals is because of the negative initial results of free trade. At the beginning it is hard to see all the benefits of free trade since jobs are being lost and domestic companies are sometimes hurt. If politicians choose to adopt policies with free trade, voters might see these bad initial results and not the good in the long term, and thus feel against free trade.

  26. Ccolbergon 18 Oct 2011 at 9:40 pm

    @Mehmet,

    I agree with all your answers. I like how you looked at structural unemployment for question 3 and noted the costs in the short run but the potential for growth in the long run. I also like that you looked again at the short run vs. long run for question 4. I agree that politicians are very concerned with their image and that free trade can look bad in the short run.

  27. cleon 19 Oct 2011 at 12:26 am

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    It shows how much the tariff is promoting domestic goods within the us. The yellow section shows the extra money made from the domestic products. But the yellow part also shows the money that could be made by foreign companies.

    2. Who gains and who loses from free trade with the US within Korea?

    -Korea will be forced to give up the beef ban in order to achieve free trade. Doing so means that cattle farmers in Korea will take a hit, on the other hand, jobs in the automobile industry will increase.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    The free trade agreement may mean that the jobs in the automobile industry will be lost, however free trade promotes a better allocation in resources across both countries. Korea will pick up the automobile production, and the us will encounter other industries expanding because of trade with Korea.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    -Doing so makes them look bad. All anyone knows is that jobs are lost in a certain sector, not the bigger picture. Economics also works in the long run, and this type of adjustment to a free trade between the us and Korea won’t happen overnight. Politicians live in the short term and are always focused with being re-elected in the short term. It is likely that voters will see the negative effects immediately, and the positive effects in the long run.

  28. cleon 19 Oct 2011 at 12:30 am

    # jcuervo

    on number two, yes korean diplomats will loose, but so will american diplomats and politicians. However, the major reason that korea will loose out is that american beef will be imported again. Korean cattle industry will likely be weakened.

  29. Mitchell_Broughtonon 19 Oct 2011 at 1:57 am

    -How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph shows how a tariff on imported automobiles in the US affects resource allocation, and how much money the tariff makes. If free trade were implemented, the first thing that the US would lose is that sum of money that goes to the government because of the tariffs. Furthermore, they would lose demand for their cars, illustrated by Q2 dropping to Q1 on the graph because of the cheaper Korean cars in the US market. This means the US car manufacturers would be the losers. South Korea would be the winner because car manufacturers in their country would improve their car sales by the same amount that US cars demand decreased. US consumers would also be winners because prices for cars would decrease and US car manufacturers would be forced to become more competitive.

    -Who gains and who loses from free trade with the US within Korea?

    US manufacturers would be the losers because they would lose demand for their products due to cheaper Korean products being imported. The reason Korean products are cheaper is because of the cheaper wages they are able to pay. The winners are the South Korean manufacturers whose products have increased demand, as well as consumers in both countries because of increased choice and decreased prices.

    -Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    It is possible that overtime it could create more jobs due to changes in technology that may come in the future, or new discoveries of useful functions for resources that are primarily in the US. However, in the short run, it would not create any new jobs for the US.

    Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians are always worried about the short term. In the short term, Americans will lose their jobs because they are not as efficient as foreign manufacturers. They care about their jobs, and want to be reelected in the coming years. If they do something drastic such as allow free trade, it will surely mean they won't get reelected as many US consumers will lose their jobs.

  30. Mitchell_Broughtonon 19 Oct 2011 at 2:00 am

    @jcuervo

    For the second question, I like the fact that you are bringing in politicians into the winners and losers. Many people often forget people who work behind the scenes, but who play a major role in determining how an economy functions. Don't you also think consumers in both countries would gain in the sense that they have more selection of goods at lower prices?

  31. Gunnhildur Ómon 19 Oct 2011 at 3:31 pm

    How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph shows the effect of imposing a tariff on imported cars in the US. The government is gaining revenue, the amount of the tariffs, and the consumers have to pay higher prices.

    Who gains and who loses from free trade with the US within Korea?

    Korean producers will benefit since they are selling their product in larger quantities, leading to their revenue increasing. The US producers will be harmed since it is very hard for them to compete with the lower prices of Korean products.

    Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Free trade is about how nations can specialize in the production of certain goods and thus increase efficiency. If there is free trade between Korea and America the primary result for American producers of cars will be loss of jobs and decreased production. This is because it is very hard for American producers to compete with the Korean producers due to lower price of Korean cars. However in the long run it is possible that new jobs will be created since American producers specializes in other industries, this demonstrates much more efficiency, and more jobs can be created.

    Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    This is because they are worried about the short term effects. The short term effects would be harmful for domestic producers since it can lead to domestic firms running out of business, more unemployment and the nation needing to rely on imported goods. This suggest that they look more at the short term effects than the long term effects that are much more likely to be beneficial to the nation.

  32. Wonwoo_Choion 19 Oct 2011 at 6:17 pm

    • How does the graph illustrate the concept of “winners and losers from free trade”?

    The graph illustrates the concept of winners and losers by marking the gains and losses of the different parties in involved in the market. For example, the yellow representing the tariff revenue for the US government is a ‘win’ for the US government. Other indicators such as the green triangles of deadweight loss represent a ‘loss’ for US consumers and world allocation of resources.

    • Who gains and who loses from free trade with the US within Korea?

    Winners: Korean manufacturing (automobile) sector

    Losers: Korean service sector

    • Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    First of all, the American service sector will flourish under the new free trade agreement. To increase profits, firms will seek to expand their supplying capabilities and hence increase employment.

    As for the other sectors, although it is self-evident that a free trade agreement will destroy existing jobs in American in the automobile sector in the short run, if America manages to restructure its economy and employment demographics to hone its comparative advantage in new or different sectors of the economy, it can surely create jobs. Moreover, the increased competition allows firms to grow more competitive and grow in the long run to produce more employment.

    • Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    This is because one of the primary motivations for action for politicians is increasing their chances for re-election. People are very subjective creatures and are hopelessly biased beings that even if the theory and the logic behind the free trade agreement is understandable, if it is going to cost them their jobs, then they are going to try to do all they can to stop it from disrupting their economic stability. Politicians will have to respond to the opinions and demands of their constituents for reelection, and therefore they are likely to vote against legislations which will harm their electorate. (or special interest groups) The rationale behind political decisions are not necessarily economic in nature.

  33. Wonwoo_Choion 19 Oct 2011 at 6:26 pm

    # Gunnhildur Ómarsdóttir

    Who gains and who loses from free trade with the US within Korea?

    I'm assuming you mean Korean automobile manufacturers when you say "Korean producers"…

    Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    The American automobile industry is huge. It holds hundreds of thousands of jobs, and a sudden influx of cheaper, higher quality Korean cars making skid marks over Ford's and GM's balance charts may lead to an accelerated pace of the atrophy of the industry. Is this a desirable phenomenon to have lots of workers unemployed at once? At times of such economic crisis as now, can the United States afford to have increased unemployment?

    Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    But how do those short term effects affect politicians' decisions in particular?

  34. Michael_Mayeron 20 Oct 2011 at 1:12 am

    How does the graph illustrate the concept of “winners and losers from free trade”? Who gains and who loses from free trade with the US within Korea?

    We can see that with a tariff, not only does the government generate a bit of revenue, but the price of imported cars goes up, causing a decrease in demand for them. This means that there is a greater demand for domestically produced cars. So, the country in question benefits from a tariff. If free trade prevented a tariff, the domestic companies in the US would be the 'losers' because they would have a lower demand. The international producers (Korea) would be the 'winners' because they would make more revenue due to a high demand for their lower priced cars.

    Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Maybe Korea ships parts to the US, and would construct factories in the US for the assembly of the cars. This would create jobs, and an increase in the demand for Korea's cars would call for more factories, therefore more jobs.

    Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Because short-term effects of free trade deals would include an increased unemployment rate. For re-election, a politician has to keep these numbers down. So, in efforts to maintain a positive rapport with the people, a politician ironically makes more short-sighted decisions that end up damaging the economy long-term.

  35. Michael_Mayeron 20 Oct 2011 at 1:15 am

    @Wonwoo_Choi

    I liked your response to the final question; you really hit on something about politics that frustrates me. A good politician would make the logical choice, but a successful politician would not. That is quite a conundrum, is it not?

    -Michael

  36. Muhammet Emin Uylason 24 Oct 2011 at 7:36 am

    1.How does the graph illustrate the concept of “winners and losers from free trade”?

    According to graph we can see the effects of the tariff and it shows us that people will buy Koreans cars more than Americans because they are cheaper.

    2.Who gains and who loses from free trade with the US within Korea?

    In this situation loser of free trade is Americans because Koreans selling their cars at lower price so Americans will prefer their cars more.

    3.Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    It is possible to create job opportunity in America in the long run by free trade agreement with Korea.

    4.Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Politicians elected in the short term but positive effects of free trade is in the long run so free trade may damage their political power because in the short run people may lose their jobs and they can lose votes.

  37. Muhammet Emin Uylason 24 Oct 2011 at 7:39 am

    @Michael_Mayeron

    I agree with your comment about last question. You are right about re-election issues.

  38. woverhauseron 04 Nov 2011 at 4:16 pm

    1. How does the graph illustrate the concept of “winners and losers from free trade”?

    It demonstrates how the US auto makers will lose demand for their cars because they can’t compete with the Korean cars, who are shown as the winners because the graphs shows they now supply more.

    2. Who gains and who loses from free trade with the US within Korea?

    The car industry will gain a lot because they can now export more cars to America and earn more money. The losers will be the beef industry because with the removal of the ban, the United States can begin to export their beef again.

    3. Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes. The car industry might suffer some losses, but the other industries that can now export more to Korea thanks to the removal of trade barriers can expand and add more workers.

    4. Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    They could be focused on how the free trade would affect their district. If they were the representative of Detroit, where the large automobile manufacturers are based, they likely would be against it to protect the workers in their district, even if other districts will benefit.

  39. woverhauseron 04 Nov 2011 at 4:20 pm

    @Michael Mayer

    You make a good point about the ironic decisions that politicians make.

  40. SuyeonSoon 09 Nov 2011 at 4:40 pm

    1. This graph shows the impact of decreased tariffs in the US car market. As tariff on Korean cars is decreased, the price graph for this would vertically decrease. Therefore, more american consumers will buy Korean cars because it became cheaper, and this makes Korea a winner in the US car market.
    2. The winners in South Korea are manufacturers as low tariffs enable them to export more goods to US market, and losers are Korean service industries.
    3. Yes, it is possible in long run. In short run, there might be some loss of job because Korean manufacturers will take the American market at first. However, in long run, as the competition intensifies and as American manufacturers become able to produce goods that can compete with Korean goods, low tariffs will help them to export their goods easier than before. This increase of demand caused by increased export will definitely contribute to increase of jobs in US.
    4. It is because of loss caused in short run. In short run, import of Korean goods will cause increased unemployment rate in Korea because consumers wouldn't buy American goods that much. Increased unemployment rate will cause many political problems because it makes politicians look like they are not working hard to fix nation's economic problem.

  41. abredeeon 06 Dec 2011 at 11:38 am

    korean consumers will also gain from the removal of tarriffs. I agree with the short run/ long run aspaects of your answer. What do you think can make such decisions politically popular?

  42. SuyeonSoon 09 Nov 2011 at 4:42 pm

    @woverhauser

    I like your comment about American politicians. I think you understand American politics and it is really interesting how you connected that to answer the question.

  43. abredeeon 06 Dec 2011 at 11:35 am

    Discussion questions:
    1.How does the graph illustrate the concept of “winners and losers from free trade”?

    As can be seen in the graph, different stakeholders win and loose from the free trade agreement. US car producers who cannot compete with the cheaper Korean cars will have to reduce their output to Q1 and thus loose revenue and profit. The government loses tariff revenue (the yellow area) when the barriers are removed. Korean car manufactures gain, their output increases from q2-q3 to q1-q4. Consumers also ultimately profit because prices decreases and consumers have access to lower-priced and more diverse cars.

    2.Who gains and who loses from free trade with the US within Korea?

    According to the article Korean car producers will profit from free trade with the US. Free trade would mean an increased demand for Korean cars and thus more revenue for Korean car producers. Other Korean exporters who can provide goods at lower prices than they cost in the US will profit equally. Consumers in Korea will also gain because of lower prices and more diversity of products. Korean producers who cannot compete with US prices for certain products e.g. Koreas service sector will have to reduce output and thus will lose revenue.

    3.Is it possible that a free trade agreement with Korea would actually create jobs in America? Explain…

    Yes if US firms can export to Korea the demand for their products will increase. Thus, they will have to hire more workers and this creates employment.

    4.Why do politicians oppose free trade deals that would result in such improvements in efficiency, allocation of resources, and even in the employment opportunities for American workers?

    Because politicians are hesitant to make decisions that may be unpopular with the public or certain lobbies. The public will blame the government for increasing short-term unemployment and lobbies will act in their self-interest to maintain or increase profit. In the long-term, however, the decisions of the government will ultimately lead to more welfare in the US, but this is often hard to realize for the public.

  44. passagens aéreason 27 Oct 2016 at 6:18 pm

    passagens aéreas

    What’s Korea’s “beef” with the US on free trade? | Economics in Plain English