Why can a trade deal increase aggregate GDP and simultaneously decrease wages for some workers? What is the implication for trade politics?
Think about your answer, then reveal below.
Model answer: Because trade changes relative factor prices as well as aggregate output. The Stolper-Samuelson theorem implies that in a skill-abundant rich country, trade liberalization benefits skilled workers but harms unskilled workers — even if GDP rises overall. The implication is that trade deals will face political opposition from losers even when economists show aggregate gains.
This is why trade debates are politically contentious even when supported by economic consensus. Aggregate efficiency gains are real, but they are distributed unequally. Compensation mechanisms (like Trade Adjustment Assistance in the US) are attempts to address this, but they are rarely sufficient to fully offset losses or politically neutralize opposition.
Question 2 Short Answer
A state discovers that 80% of its semiconductor supply comes from a single foreign country. Under what conditions would this interdependence promote peace, and under what conditions would it create conflict?
Think about your answer, then reveal below.
Model answer: It promotes peace if both sides are mutually dependent and both have large economic stakes in maintaining the relationship. It creates conflict if the dependency is asymmetric (one side depends far more than the other), if the dependent state perceives strategic vulnerability, or if political tensions make the supplier willing to weaponize the dependency.
This is the core tension in economic statecraft: interdependence ties states together but also creates leverage. The same economic relationship can simultaneously be a bond and a weapon. Which effect dominates depends on the symmetry of the dependency, the political relationship, and whether alternative suppliers exist.