Question

Can someone help me with this queshtion I do not understand it for anything. I been struggling with 2 days and its really confusing. Its only one queshtion but has 2 parts I need to shift the curves in the graph and answer the question down but its really tricky. Can anyone help me. This was the only way I can post it. It starts from where it says IT STARTS HERE.

NAFTA: Breaking Up Is Hard to Do

Paul Krugman

International trade policy played an important role in the 2016 U.S. presidential election, with Donald Trump, the winner, denouncing past trade agreements. He was especially harsh about the North American Free Trade Agreement (NAFTA) establishing free trade among the United States, Canada, and Mexico, which went into effect in 1994. He described NAFTA as "the single worst trade deal" ever made by any country.

Once in office, however, Trump moved far more cautiously on trade policy than this campaign rhetoric might have suggested, seeking to renegotiate some of NAFTA rather than simply abrogating it. Why?

One important reason, probably, was that many U.S. businesses and workers have a strong stake in retaining access to Mexican markets. Figure 1 shows U.S. trade with Mexico, measured as a share of the total U.S. economy, in 1993—just before NAFTA—and in 2016. Although there was a large increase in U.S. imports from Mexico, which are politically controversial, there was also a large increase in exports to Mexico. The businesses producing these exports would not be happy to see trade disrupted. In fact, President Trump told reporters that he was set to terminate NAFTA until cabinet members provided him with maps showing how many communities in the United States have become reliant on selling to Mexico.

Figure 1: Effects of NAFTA on Trade Exports Imports 1993 2016 Year Source: US Census Bureau Percentage of U.S. GDP

Another, somewhat different reason that unraveling NAFTA would be hard is that much of the trade within the area involves complex “supply chains” in which inputs from all three countries are used to produce consumer goods. This is especially true of the auto industry. For example, Honda assembles CR-Vs, a popular sport-utility vehicle, at a plant in Mexico, but the motor and transmission are produced in the United States. In fact, 70% of the car’s value is actually American or Canadian. Conversely, many cars produced in the United States make use of imported inputs: Ford’s plant in Wayne, Michigan, gets 27% of its components from Mexico.

Overall, about 40 cents of every dollar’s worth of Mexican exports to the United States involves components produced north of the border, whereas many U.S. industries depend on components produced in Mexico. Any new trade barriers would disrupt these production arrangements and raise the costs of producing in North America as opposed to, say, Europe or Japan.

As previously noted, these economic realities led Trump to tone down his rhetoric on NAFTA once the election was over. And markets noticed. As Figure 2 shows, immediately after the U.S. election, the value of the Mexican peso in terms of U.S. dollars plunged on fears that a breakup of NAFTA would damage Mexican exports. Once Trump took office, however, the peso began recovering, and by the summer of 2017, it was actually above its pre-election level.

In short, breaking up trade agreements is much harder than it looks. Fiery rhetoric during the campaign was one thing; actually demolishing a trading system into which many businesses have sunk a lot of money is a much tougher proposition.

IT STARTS FROM HERE:

1. Suppose the accompanying diagram depicts the market for natural gas in the United States. The United States is currently a net exporter of natural gas to Mexico—it exported about 100 billion cubic feet of natural gas to Mexico in 2016.

Suppose President Trump makes good on his promise to withdraw from NAFTA, prompting retaliatory tariffs on goods exported to Mexico, including natural gas. Shift the curves in the diagram to reflect the new trade landscape.

After the tariffs are in place, U.S. suppliers of natural gas will sell ?,

A. the same amount of

B. more

C. less

natural gas at ?.

A. a lower

B. a higher

Answer 1

U.S. market for natural gas S P world D Quantity (Billions of cubic feet) Price ($/MMBTU)

If the US stops exporting natural gas, there would be an excess supply of it within the nation. this shifts the supply curve rightward. What we see as a result is an increase in the quantity and fall in the prices.

After the tariffs are in place, U.S. suppliers of natural gas will clearly be selling more at lower prices now.