According to statistics, fuel and mining products accounts for the major share (70%) of Chinese exports to the NAFTA, and 40% of China's imports from the NAFTA are machinery and transport equipment.

a. Using the standard trade model, draw NAFTA's production possibility frontier with fuel and mining products on the vertical axis and machinery and transport equipment on the horizontal axis. Draw a line tangent to the production possibility frontier and show the slope. Choose a production point and a consumption point which shows that the NAFTA is a net exporter of machinery and transport equipment. Label your graph to show clearly how many machinery and transport equipment the NAFTA exports and how much fuel and mining products it imports. GRAPH

b. Suppose China decides to subsidies fuel and mining products exports. - How will this policy affect the terms of trade of the NAFTA?

- Will this lead the NAFTA to export less and import more? c. How do you think the recent sanctions and trade restrictions that were imposed on China will affect the welfare of the Chinese members