When thinking of the story of the hoax and fraud Mr.. X’ in a global context, the question Is whether a member of the World Trade Organization can and should react similarly as the Congress did In the US. I think they should not react In this way. The reason that the member states of the WTFO should not act in this way, is because one of the goals of this organization is stimulating free trade, and in their view of further liberalizing trade they should allow Mr.. X his business. All that Mr.. X is doing is exporting products in order to generate earnings that can be used to import a rarity of finished products, as TV, watches De. Which Is also called Indirect production. Mr.. X in this text is denounced as a fraud who is destroying American jobs, because instead of producing the goods himself he is trading US goods on international markets against goods produced with cheap foreign labor. But because of this trade, North Carolina was booming. Because of this trade, employment expanded, wages rose and people were able to buy at low prices. My point Is that International trade is an economic activity like any other and can indeed usefully be thought of as kind of production process that transforms exports into imports and that results to higher welfare.
It is argued that because labor Is cheaper abroad, Mr. X. Could Import products which he could undersell In the united States, and If American business Is not protected, the very standard of living in the united States is In danger. Of course, some jobs will be lost but also many new jobs will be created. Of course, producers do not like this kind of competition, but consumers can enjoy the low prices, spend more and the standard of living of a country will only rise. There are great welfare anis from international trade which are derived from exchange.
Trade lets the US concentrate on producing these goods that It Is especially good at producing and exchange some of those goods for the things that It could produce Itself only at higher costs. The production possibilities frontiers (Fps) of the countries in this case are different and the tastes probably too (indifference curves), which means different relative prices. These difference In relative prices allows both countries (US and abroad) to enhance their national welfare by engaging In International trade.
The gain from exchange Is the result of domestic consumers substituting the relatively cheaper foreign products for the relatively more expensive domestic products. We can also speak about this case in terms of opportunity costs and comparative advantage. Each country can reach a higher level of welfare by specializing in, and exporting, the good that has the lower opportunity costs and thus the good for which It has a comparative advantage. In this case, Mr.. X exported the products that had products that had lower opportunity costs abroad (TV’s, watches, textiles etc. ).
This trade led to a positive-sum game in which both players won. We can understand why some of the domestic producers in this case were hurt, by looking at it through the partial equilibrium model. Because the prices in the US fell, consumers gained a surplus. However, producers lost a part of their previous surplus. This means that the import-using consumers gained and import-competing domestic producers lost welfare, but the consumers gained more that the producers lost, so trade brought net gains. In one thing the American Congress was correct, and that is that they should urge more money for research in industrial technology.
As the Solos growth model suggests, in the absence of technological progress, increased international trade can only cause medium-run growth as a result of the economy’s adjustment to a new steady state. Permanent economic growth is only possible with continued technological progress. And again, trade can stimulate technological progress in the country, because of learning by doing, learning by exporting and importing, and increased competition. Free trade and technological advance have similar effects. Both increase the range of choices open to consumers, but both also disrupt established producers.