Exercises: Globalisation, free trade, and protectionism

Explain what globalization is and name two factors that have made it possible (cheap container transport, the internet). Then, play label detective: find three products at home or in your backpack and their country of manufacture, and comment on anything that surprised you.

Define export and import with a Spanish example of each (selling oranges to Germany; buying cell phones manufactured in Asia or oil). Explain the two reasons why a country buys goods from abroad: because it lacks the product or because others produce it more cheaply.

The figure shows the trade balance of Exportia, an imaginary country, over two years: what it sold abroad (exports) and what it bought (imports), in billions of dollars. In $2024$, it imported $280$ and had a deficit of $40$: it bought $40$ more from abroad than it sold.

1. a) Calculate Exportia's exports in $2024$, which is the missing figure in the chart.
2. b) Calculate the balance for $2023$ and state whether it was a surplus or a deficit.

Follow the journey of a $\$12$ T-shirt: cotton from India, yarn and fabric woven in Bangladesh, sewn into a garment in Bangladesh, designed in Spain, shipped by boat to Los Angeles and sold in a store in your city.

1. a) Count how many countries take part and explain why it is called a 'global value chain'.
2. b) Argue why each stage is done where it is done (costs, know-how, closeness to the customer).

A multinational is a company operating in many countries: it designs in some, produces in others and sells in almost all of them.

1. a) Give two examples of multinationals you use or see daily and explain what makes them multinationals.
2. b) Argue two advantages they have over a neighborhood store (they buy and produce on a large scale, more cheaply) and one disadvantage for the neighborhood (the profit leaves the area and they compete with local stores).

Each country specializes in what it produces best or most cheaply: the United States exports corn, oranges and cars, and buys coffee and technology.

1. a) Explain why that exchange benefits both sides (each one does its own thing and buys the rest).
2. b) Argue what would happen if your country tried to produce everything, even bananas or microchips (more expensive, less efficient).

The fair trade label guarantees that the producer (the coffee grower, the cocoa farmer) was paid a fair price and worked in decent conditions, with no child exploitation.

1. a) Explain what problem it tries to correct (the price the farmer receives is tiny compared with the final price).
2. b) A bar of conventional chocolate costs $\$1.20$ and the fair trade one, $\$1.80$: argue what you are paying for with the difference and whether you would buy it.

When a German tourist spends $\$800$ at a hotel in Miami, the United States is "exporting" services even though nothing crosses the border in a truck.

1. a) Explain why tourism counts as an export (money comes in from abroad in exchange for a service done here).
2. b) Give two more examples of "invisible exports" (a foreign student paying for a master's degree here, an American software company selling licenses to Chile).

Last year, Naranjania exported goods worth $400$ billion dollars and imported $350$.

1. a) Calculate its trade balance and state whether it was a surplus or a deficit.
2. b) This year it exports $380$ and imports $430$: calculate the new balance and explain what has changed.
3. c) Explain why a deficit is not always bad news: what is the difference between importing candy and importing machinery for factories?

Zapatilandia produces sneakers, but imported ones are cheaper: costing $\$50$ compared to $\$55$ for local ones. The federal government introduces a tariff of $20\ \%$ on imported sneakers.

1. a) Calculate the new price of the imported sneakers.
2. b) Explain who wins and who loses from the tariff: the local factory, its workers, and the buyers.
3. c) What could the neighboring country do in response, and what is this risk called (retaliation, trade war)?

Spain is part of the European Union and the single market: goods, people, services, and money move freely between member countries, and $20$ of them share the dollars.

1. a) Explain two concrete advantages for you (traveling or studying in another EU country, shopping online at a European store without customs duties, not having to exchange currency).
2. b) Give an example of a product we buy from another EU country and another that we sell to them, and explain why trading within the union is easier than outside it.

The trade balance of Vendelandia, in billions of dollars: in $2022$ it exports $310$ and imports $300$; in $2023$ it exports $305$ and imports $330$; in $2024$ it exports $290$ and imports $350$.

1. a) Calculate the balance of each year and say whether it is a surplus or a deficit.
2. b) Describe the trend and give two possible explanations (it loses competitiveness; the bill for the energy it imports rises).
3. c) Argue why a deficit that repeats and grows is more worrisome than a one-time deficit.

The local cheese of Queseria costs $\$9$ a kilogram; the imported one, $\$7$. The federal government is considering a $30\ \%$ tariff on imported cheese.

1. a) Calculate the price of the imported one with the tariff and compare it with the local one.
2. b) Explain who celebrates the tariff and who pays for it (local cheesemakers and their jobs, versus buyers, who pay more).
3. c) Analyze what can happen if the neighboring country responds with a tariff on Queseria's wine (a trade war: it is paid by the wine exporters).

Your brother wants a game console only sold in the United States for $400$ dollars; the exchange rate is $1.10$ dollars per euro.

1. a) Calculate how many euros it costs today.
2. b) If in a month the rate moves to $1.00$ dollar per euro (the euro weakens), calculate the new price in euros and explain who wins and who loses when your own currency weakens (importing becomes more expensive; exporting becomes cheaper for those abroad).

At the farmers market, a kilo of tomatoes from the nearby farm costs $\$2.80$ and the imported one, $\$1.90$.

1. a) Calculate how much more a family buying $2$ kg a week of local tomatoes pays over a year (count $52$ weeks).
2. b) Explain what that family is buying besides tomatoes (local jobs, less transportation and fewer emissions, a well-kept landscape) and assess whether the extra price seems justified to you, and for whom.

A giant ship runs aground and blocks a key canal for two weeks: thousands of containers are delayed and the price of shipping rises.

1. a) Explain why a jam $10,000$ km away can make the cell phone or sneakers you buy here more expensive (global supply chains are long and run "just in time": factories barely keep any inventory).
2. b) Argue what companies do to protect themselves (two suppliers on different continents, some inventory) and what that protection costs.

A bicycle company in your state announces that it is offshoring its assembly plant to Vietnam, reducing its wage costs by $65\,\%$. Following the relocation, the retail price in the United States drops from $\$400$ to $\$300$, but $120$ direct jobs are lost in the area.

1. a) Analyze the distributional impact of this decision: identify which economic agents win and which lose with this measure, justifying in detail the benefits or harms for each.
2. b) A local group proposes imposing a $35\,\%$ tariff on the import of these bicycles to penalize offshoring. Predict what effects this protectionist measure would have on the retail price, the welfare of consumer households, and the long-term competitiveness of the company.
3. c) Design an alternative business strategy so that a bicycle factory located in an upper-middle wage country like the United States can compete in the global market without resorting to tariffs or wage cuts.

The government of "Nordia" approves a $25\,\%$ tariff on imported steel to protect its traditional steelmaking industry from cheap foreign competition. Six months later, the steel manufacturers' association celebrates that $3,000$ blast furnace jobs have been saved; however, the automotive and home appliance manufacturers' associations announce mass layoffs and a $15\,\%$ drop in their exports.

1. a) Explain the economic mechanism connecting the tariff applied to steel with the crisis triggered in Nordia's automotive and home appliance sectors.
2. b) If steel-exporting countries respond by imposing retaliatory tariffs on Nordia's agricultural products, analyze who ultimately bears the final net cost of the trade war that was started.
3. c) Evaluate under what very specific theoretical conditions (such as the "infant industry" argument or "national strategic security") a temporary tariff could be justified, and determine with reasoning whether Nordia's traditional steelmaking industry meets these requirements or not.

During an international logistics crisis, the collapse of major Asian ports disrupted the supply of microchips to Europe, halting automotive assembly lines, making new vehicles $20\,\%$ more expensive, and forcing temporary layoffs (ERTE).

1. a) Contrast the 'just-in-time' production model (lean production with near-zero inventory to minimize costs) with the 'just-in-case' model (precautionary stockpiling). Why did hyperglobalization massively incentivize the former, and what structural vulnerability did it create in the face of supply shocks?
2. b) The European Union is considering two options to secure the supply of strategic components:

• Option A: Subsidize the construction of semiconductor plants in Europe, which requires billions of dollars of public money and will yield chips that are $30\,\%$ more expensive than Asian ones.

• Option B: Continue importing from Asia, but mandate by law that companies diversify suppliers across at least four different countries and finance a joint warehouse with a six-month reserve stockpile.

Compare the costs, benefits, and risks of each alternative for taxpayers, businesses, and consumers, and defend which one you would adopt.

The athletic footwear company "Velox" is considering bringing its production back to the United States after fifteen years of manufacturing in Asia. Its unit cost data per pair are:

• In Asia: manufacturing of $\$16.50$ and maritime transport, tariffs, and insurance of $\$3.50$. Delivery time to U.S. stores: $6$ weeks. The plant employs $300$ workers.

• In the United States (robotized plant): machinery depreciation and energy of $\$14.20$, direct labor of $\$7.80$, and internal logistics of $\$1$. Delivery time: $48$ hours. The plant requires only $30$ maintenance and programming technicians.

1. a) Calculate the absolute and percentage difference in unit cost between both alternatives.
2. b) Justify which non-price competitive advantages (such as responsiveness to fashion trends or inventory holding costs) would allow Velox to be more profitable manufacturing in the United States despite having a higher unit cost.
3. c) Analyze the employment paradox of "reshoring" (relocation back home): if the return of automated factories creates one-tenth of the jobs that were once offshored, what implications does this have for public employment policies and vocational training?

Analyze the following statement: "The commercial and financial globalization of recent decades has been a zero-sum game where only multinational corporate elites have enriched themselves at the expense of the rest of humanity."

1. a) Refute the idea that globalization has been a "zero-sum game" by providing economic arguments regarding the evolution of extreme global poverty in emerging countries and the purchasing power of consumers in Western economies.
2. b) Justify why, despite overall welfare gains, the manufacturing working class in advanced economies (such as traditional industrial hubs) perceives that it has been the major loser in the process.
3. c) Design an international economic policy measure (in the tax or labor sphere) aimed at redistributing the gains from global trade more equitably without resorting to protectionist barriers.

Topic Challenge. To what extent does your daily life depend on global trade? Become an economic advisor and assess the impact of globalization on your surroundings.

1. Household audit: Record $6$ goods from your home (clothing, technology, food) in a table, noting their country of manufacture ("Made in...") and the parent company.

2. Comparison with official data: Go to the U.S. Census Bureau's foreign trade website or the Bureau of Economic Analysis (bea.gov) and check whether the United States runs a trade deficit or surplus with the foreign country that appears most frequently in your sample.

3. Trade policy proposal: Write a brief report (maximum one page) assessing whether it would be advisable to apply a protectionist measure (for example, a $12.5\,\%$ tariff) on one of those imported products to protect American companies, or whether it is preferable to maintain free trade. Weigh the pros and cons for consumers and local producers.

Evaluation criteria:

• Accuracy in household data collection and correct consultation of official statistical sources.

• Mastery of key concepts: globalization, balance of trade, free trade, and protectionism.

• Coherence and critical depth when arguing the socioeconomic consequences of your proposal.