This blog is reporting on the
writer’s (developer’s) effort to design a unit of study suitable for high
school seniors. The unit is the last
unit of a government course (a required semester course in most, if not all,
states). To date, the blog has presented
the first four lessons of the unit. The
planning, in real time, will now continue with the fifth lesson of a
nine-lesson unit (two weeks). Each
lesson has addressed an aspect of foreign trade and how that trade affects job
availability in the US.
This
fifth lesson will address the role currency valuations have in foreign
trade. In a previous posting, the
developer identified the following insight:
In international trade, if
a nation’s products are losing favor among customers, then its national
currency will lose value. Why? Because one needs that nation’s
currency to buy that nation’s products and if less people are buying its
products, they need less of that currency – lowering its demand.
When the value of a currency
goes down, though, it takes less of another nation’s currency to buy that first
currency. This, in effect, lowers the final price of that first nation’s
products. They become cheaper and, therefore, will be in more demand as
time goes by.
The opposite happens when a
nation’s products become more favored by customers. Currency value of the
nation goes up, those products become more expensive, and the demand for the
products goes down.
In short, if currencies
values can float according to market forces, they will act to stabilize the
balances of trade/payments among nations. But when a nation manipulates
its currency, that policy aborts the market from arriving at such a balance.[1]
Understanding the role that
currencies play in foreign trade is essential to understanding, one, how
foreign trade transpires and, two, how the politics of foreign trade affects
the general politics of the nation. The
US is not new to this source of political motivations. It was an issue affecting Jeffersonians in
the early years of the republic.
As the insight points out, high currency valuations hurt the
exporters of a nation. As it makes their
products more expensive, demand for their product shifts to those nations that
have relatively cheaper currencies. This
can off-set lesser demand for lower quality products.
The reader can ask
him/herself: has he/she ever bought a
product that is known to be of lower quality, but cheaper? Probably so.
It terms of many products, where the quality is not so much an essential
attribute, the consumer might very well be attracted to cheaper prices, albeit
for a lesser quality item. One might buy
a Buick SUV, for example, even though he/she can afford a Mercedes-Benz
SUV. And that’s a product where quality
is important.
Higher currency valuation
policy is judged to be part of a restrictive, overall trade policy. Lower currency valuation policy is judged to
be part of a liberal trade policy. The
US has a history of higher currency valuations.
This in part, especially in the years just after World War II, was due
to the demand for US manufacturing goods.
Remember, most of the manufacturing capabilities of the other industrial
nations were seriously damaged during the war.
Part of the Marshall Plan
thinking, described in an earlier posting, was to sustain a high currency
valuation in the US. This was thought to
further assist the other nations to get their manufacturing capabilities viable
again. It also helped lesser developed
nations to initiate industrial capacities.
This was particularly helpful initially to China and subsequently to
nations such as Korea, Vietnam, and other Asian nations.
With that context, it’s
time for the fifth lesson plan.
Objective:
Given the appropriate
prompt asking students to describe the function of currency valuations in
foreign trade, the student will provide the instrumental elements of currency’s
role in heightening or depressing demand levels for the products of a trading
nation. Summarily, higher demand for a
nation’s products raises the value of that nation’s currency which, ironically,
lowers the demand for those same products.
The reverse is true when there is lower demand for those products. As such, currency valuations serve as a
leveling factor if they are allowed to fluctuate via market forces.
Lesson
steps:
Pre-lesson. See
previous posting, “Setting the Problem,” October, 17, 2017, for this element’s
description. In this fifth lesson, the
following factoids are distributed:
·
Americans aged 55 to 65 years old are
the best educated people of that age bracket in the world. Americans aged 25 to 34 are ranked 13th
in education attainment in the world.[2]
·
The US ranks 16th in the
world when it comes to the quality of its infrastructure.[3]
·
The US is last, by a long shot, among
advanced nations in retraining its workers.[4]
·
In 1979 the United States had 19.5
million manufacturing jobs; in 2004 it had 14.3 million manufacturing jobs; in
2014 it had 12.2 million manufacturing jobs; and it is projected that in 2024
it will have 11.4 million manufacturing jobs.[5]
·
In terms of the loss of manufacturing
jobs, 13.4% is due to trade; 88% is due to productivity growth – mostly the
product of automation.[6]
Same day steps –
[Note: the following steps contains an activity that
is being, along with the rest of these lesson plans, developed in real
time. The activity, as written below, needs
further development – perhaps a dry run with students who know they are
cooperating in its development would be helpful.]
1. Teacher hands out the newsletter for the day. Students are given time to read the
newsletter while attendance is taken and other administrative items are
handled. (seven minutes)
2. Teacher asks students if they have any clarifying questions
regarding the newsletter. Beginning with
the last lesson, there will be no follow up activity regarding the newsletter;
its content provides further information relevant to the topic of the unit and
subsequent activities. (five minutes)
3. Teacher collects homework assignment. (one minute)
4. Teacher
begins a simulation exercise. It calls
on students to take out a couple of sheets of paper. On one, they divide the sheet into three
parts. On each part they roughly draw
the image of a product, such as cars or refrigerators. These products can be predetermined by the
teacher and assigned to groups of students who gather in such groups and
represent an individual nation (nation A, B, C, etc.) In addition, each nation is given a
population amount (a suggested distribution would have A with the lowest
population and B, C, and, if necessary, D having consecutively higher
populations). The number of nations can
be limited to three or four. Therefore,
each nation produces, exclusively in the simulation, the three products they
indicate on their paper. It probably
works best if the products are considered essential, such as cars and
refrigerators. On the other sheet, they
divide the sheet into ten equal spaces (rectangles) and in each space writes
the name of the nation (A, B, C, etc.) and the number 1 million. The students then cut out the spaces created
on each sheet so that, for example, one cut out space corresponds to 1 million
or one product. The “million” refers to
that nation’s currency and a million units (such as dollars or pounds) of that
currency.
5. The
teacher instructs students that the class is going to simulate a round or two
of trade. Each nation “needs” the
products produced by each of the other nations.
They “must” buy it. No two
nations produce the same product and, therefore, each nation must buy each
product from the producing nation. But,
there are two interfering factors: one,
the buyer needs to first buy the currency of that nation and, two, not all
currencies are valued the same. Nation
A’s currency is twice as valuable as Nation B’s currency (it takes 1 million of
A’s to buy 2 million of B’s), B’s is twice as valuable as C’s, and if
applicable, C’s is twice as valuable as D’s.
6. Teacher
“taxes” each group twenty million of their currency to expedite the banking
function described in number 7 below.
This taxing amount might need to be higher.
7. Teacher
plays the role of the “banker” and will entertain one student from each group
who will trade their nation’s currency for the currency sought; i.e., the
currency from which the nation wants to buy products it wants.
8. Teacher
announces to all the groups what products are for sale, with their prices, and
which countries sell them (price designation should take into account how much
of the currency is in “circulation”).
Having these lists visible is helpful.
9. The
students, within their groups, decide which products they will buy and in what
amounts. These decisions are based on
the list of prices the teacher projects on the board or overhead. After sufficient time, each group lists its
proposed purchases and submit the list to the banker. The aim is to see which group comes closest
to its aim.
10. Representatives
from each group goes to the banker to exchange their currency for the currencies
they need.
11. Then
students from each group go and “purchase” the units of products they choose to
buy.
12. After
all purchasing takes place, an accounting is done to see how close the pre aims
of each country are met. If necessary,
the above procedure is done a second time.
If not, the teacher conducts a short discussion aimed at pointing out
that currency values affect how well trading nations do in conducting foreign
trade. Of course, time availability in
the period needs to be considered.
13. The
teacher concludes the activity by sharing the insight upon which this lesson is
based. He/she goes on to explain how
currency valuations, as the insight points out, can serve to level foreign
trade by affecting the demand for specific goods, as the simulation should demonstrate.
14. Teacher
ends the lesson by posing a question for students to consider: should a nation actively manipulate its
currency or leave it to market forces to determine its value?
Assignment: The teacher asks students to jot down their
ideas on what a good foreign trade policy should include. Should it encourage exports? If so, how?
Their ideas will be collected to ensure students take the time to answer
the questions. This is an easy “A” grade
since the teacher is only determining the effort to complete the assignment.
That
ends the fifth lesson. The next lesson –
i.e., the next posting – will look at how other nations have conducted their
trade and set up their foreign trade policy.
[1] See posting
“To Be Pro Market or Not,” September 26, 2017.
This insight was based on the research of Edward Alden, Failure to Adjust: How Americans Got
Left Behind in the Global Economy (Rowman and Littlefield, 2017).
[2] Edward Alden, Failure to Adjust:
How Americans Got Left Behind in the Global Economy (Rowman and
Littlefield, 2017).
[3] Ibid.
[4] Ibid.
[5] “Live Velshi and Ruhle,” MSNBC, October 24,
2017. This report was highlighting an
article by Sheelina Kolhatker, “Welcoming Our New Robot Overlords,” The New Yorker, October 23, 2017.
[6] Ibid.
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