Teacher's Guide - The Curriculum Project

International Trade (cont’d)Trade DeficitsAsk students to read the text about ‘Trade Deficits’. Then ask students toread through the text on their own. Elicit words that they don’t know. Ask ifthey, or other students, can guess the meaning. If not, give them a dictionaryto look it up and tell the class.Groupwork1. Put the students into groups of 3-5. Give them the following informationto help them. Give them 20 minutes to prepare their ideas.Labour: As labour in China is much cheaper than in the USA, it is much cheaper to producegoods which require a lot of low-skilled people in the manufacturing process. In the USAwages are much higher, so labour-intensive goods are much more expensive to produce.Technology: The USA tends to focus more on goods and services which reqiure high technologyand skilled workers, or low numbers of unskilled workers, to produce them. This is becausetechnology and education in the USA are currently better than in China (trade advantage), butlabour is more expensive (trade disadvantage). Products like soybeans, metals, wood, and cottoncan be produced in large quantities using technology and small numbers of workers. Chemicals,aircraft, and industrial machines, tend to require high technology and highly skilled workers toproduce them.China on the other hand has huge quantities of cheap unskilled labour. Therefore, it tends tofocus on goods which require many workers to produce.Wealth: America is a rich country. The average American has a lot more money than the averageChinese person. Therefore, Americans tend to consume many more goods and services perperson than the Chinese.China is a very fast growing market, but the majority of the population remains quite poor.Therefore, they tend to consume fewer goods and services person than Americans.Production/Consumption Needs: Due to the trade advantage of cheap labour, China is producinghuge amounts of finished goods. To do this it needs raw materials, like cotton, wood, plastics,steel, etc. It is unable to supply all of these needs itself, so needs to buy from other countries.The USA does not need so many raw materials, and so can sell some of its raw materials to theChinese. However, the American people want finished goods, like TVs, toys, computers, etc. It ismuch cheaper to buy them from China than to produce them in the USA.Discussion2. Why is the USA’s trade deficit with China so huge?The US economy is driven by the consumption of finished goods. Many of the goods it consumescome from China. The Chinese economy is driven by production of finished goods. It requires rawmaterials, some of which come from the USA. However, the value of finished goods exported fromChina to the USA is much greater than the value of raw materials exported from the USA to China.The Curriculum Project ECONOMICS: an introduction - Teacher’s Guide55