Economics · Grade 11 · Global Markets and International Trade · Term 3

Arguments for and against Trade Barriers

Students will analyze the economic arguments for and against protectionist policies like tariffs and quotas.

• Ontario Curriculum Expectations
• ON: Global Economic Interdependence - Grade 11
• ON: Economic Stakeholders - Grade 11

About This Topic

Exchange rates determine the value of one currency relative to another, playing a vital role in international trade and travel. Students in Ontario learn how the forces of supply and demand in the foreign exchange market (FOREX) determine these rates. They explore the difference between a 'strong' and a 'weak' Canadian dollar and how fluctuations affect exporters, importers, and consumers.

Understanding currency markets helps students grasp why the price of gas or electronics might change even if the global price is stable. They also examine the role of the Bank of Canada in monitoring the dollar's value. This topic comes alive when students can physically model the patterns of currency exchange and see how a change in interest rates or commodity prices (like oil) ripples through the exchange rate.

Key Questions

1. Analyze the trade-offs created by protectionist policies for domestic industries.
2. Explain the infant industry argument for tariffs.
3. Critique the national security argument for trade barriers.

Learning Objectives

• Analyze the economic arguments for and against specific trade barriers, such as tariffs and quotas.
• Evaluate the impact of protectionist policies on domestic industries and consumers.
• Explain the rationale behind the infant industry argument for implementing trade barriers.
• Critique the national security argument for trade barriers, considering potential economic consequences.

Before You Start

Supply and Demand

Why: Students need a foundational understanding of how supply and demand interact to determine prices and quantities in a market.

Market Equilibrium

Why: Understanding how markets reach equilibrium is essential for analyzing how trade barriers disrupt these balances.

Key Vocabulary

Trade Barrier	A government-imposed restriction on the international trade of goods and services. Examples include tariffs, quotas, and subsidies.
Tariff	A tax imposed on imported goods, making them more expensive for domestic consumers and protecting domestic producers.
Quota	A government-set limit on the quantity of a particular good that can be imported into a country during a specified period.
Protectionism	An economic policy of shielding domestic industries from foreign competition through trade barriers.
Infant Industry Argument	The economic rationale that new domestic industries need temporary protection from established foreign competitors to grow and become competitive.

Watch Out for These Misconceptions

Common Misconception

A 'strong' dollar is always good for the economy.

What to Teach Instead

A strong dollar makes Canadian exports more expensive for foreigners, which can hurt our manufacturing and resource sectors. A 'role-play' between an exporter and a traveler helps students see both sides.

Common Misconception

Exchange rates are set by the government.

What to Teach Instead

In Canada, we have a 'floating' exchange rate determined by the market. Comparing this to 'fixed' rates in other countries helps students understand the role of market forces.

Active Learning Ideas

Simulation Game: The FOREX Market

Students are given 'CAD' and must trade for 'USD' or 'EUR' to buy specific goods from those countries. As demand for a currency rises, students must adjust their 'exchange rate' on the fly.

50 min·Whole Class

Inquiry Circle: The 'Petrodollar'

Groups research the historical correlation between the price of oil and the value of the Canadian dollar. They present their findings on why the CAD is often called a 'commodity currency.'

40 min·Small Groups

Think-Pair-Share: Travel Planning

Students 'plan' a trip to a country where the CAD has recently strengthened or weakened. They discuss how the exchange rate would affect their budget for hotels, food, and souvenirs.

20 min·Pairs

Real-World Connections

• Canadian dairy farmers utilize supply management, a form of protectionism involving quotas and price controls, to maintain stable incomes and protect against cheaper imports.
• The historical Smoot-Hawley Tariff Act in the United States, enacted in 1930, is often cited as an example of protectionist policies that worsened the Great Depression by reducing international trade.

Assessment Ideas

Discussion Prompt

Pose the question: 'Imagine Canada is considering a tariff on imported steel. What are two potential benefits for Canadian steel producers, and two potential drawbacks for Canadian car manufacturers?' Facilitate a class discussion where students articulate these trade-offs.

Quick Check

Provide students with a short case study describing a country implementing a quota on imported textiles. Ask them to write down one sentence explaining the intended goal of the quota and one sentence describing a likely consequence for consumers.

Exit Ticket

On an index card, ask students to define 'infant industry argument' in their own words and provide one example of a product or industry that might use this argument for protection.

Frequently Asked Questions

What factors cause the Canadian dollar to fluctuate?

Key factors include interest rate differentials, inflation rates, the price of commodities (especially oil), and the overall strength of the Canadian economy compared to our trading partners.

How does a weak dollar help Canadian exporters?

A weak dollar makes Canadian goods cheaper for foreign buyers. This increases the demand for our exports, which can boost production and employment in sectors like forestry, mining, and manufacturing.

How can active learning help students understand exchange rates?

Active learning, like a 'currency trading' simulation, makes the abstract concept of 'demand for a currency' tangible. When students realize they need to 'buy' CAD to 'buy' Canadian wheat, they understand that the demand for our goods is what actually drives the value of our money.

What is the 'Big Mac Index'?

It is an informal way of measuring 'purchasing power parity' (PPP) between two currencies by comparing the price of a McDonald's Big Mac in different countries. It helps students understand if a currency is 'undervalued' or 'overvalued'.