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Open Economy and International Trade: United States' Exports and Leading Trading Partners

This chapter explores the United States' position in the global economy, focusing on its exports of goods and services as a share of GDP, leading trading partners, comparative advantage, tariffs, trade restrictions, and the potential effects of trade liberalization.

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Open Economy and International Trade: United States' Exports and Leading Trading Partners

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  1. Contemporary Economics:An Applications ApproachBy Robert J. Carbaugh1st Edition Chapter 16: The United States and the Global Economy

  2. Open Economy Exports of goods & services as a share of GDP, 1998 Exports as % Country of GDP Netherlands 55% Norway 41 Canada 39 Mexico 31 South Korea 31 United Kingdom 29 Germany 25 France 25 United States 12 Japan 10 Source: IMF, International Financial Statistics, May 1999 Carbaugh, Chap. 16

  3. Open Economy US international trade in goods, 1997 ($ billion) US Exports Agricultural products 58.4 Industrial supplies & materials 147.7 Capital goods 295.3 Automotive vehicles, parts & engines 74.0 Consumer goods 103.9 Total 679.3 US Imports Petroleum products 71.8 Industrial supplies & materials 145.5 Capital goods 254.2 Automotive vehicles, parts & engines 140.8 Other 265.0 Total 877.3 Source: Economic Report of the President, 1999 Carbaugh, Chap. 16

  4. Open Economy Leading trading partners of the US, 1997 All countries, total $625 $818 Canada 133 160 Japan 68 118 Mexico 55 76 Germany 23 40 United Kingdom 31 31 China (incl. Hong Kong) 25 64 South Korea 27 18 Singapore 17 21 Belgium/Luxembourg 13 7 Value of US Value of US Country Exports ($ bill.) Imports ($ bill) Source: IMF, Direction of Trade Statistics, December 1998 Carbaugh, Chap. 16

  5. International Trade Comparative advantage and int'l trade (a) United States (a) France Autos (per day) Autos (per day) B' Gains from trade A C C' Gains from trade A' B Carbaugh, Chap. 16

  6. International Trade Examples of comparative advantage Comparative advantage largely due Country to natural resources and climate United States Wheat, corn, cereals Canada Timber Saudi Arabia Oil France Wine Brazil Coffee Israel Oranges, grapefruit Mexico Tomatoes Comparative advantage largely due to physical Country capital, human skills, and scientific knowledge United States Aircraft, computers, industrial chemicals, plastics, chemicals Japan Automobiles, steel, electronics Germany Machine tools, scientific instruments, luxury automobiles United Kingdom Financial services Taiwan Textiles Switzerland Watches South Korea Ships Carbaugh, Chap. 16

  7. International Trade Selected US tariffs Product Duty rate Gasoline $1.05/bbl. Mercury 16.5 cents/kg Safety fuses $1.18 per 1,000 Ski gloves 3.5% of value Zinc bars 4.2% of value Motor vehicles 2.5% of value Woven fabrics 48.5 cents/kg + 38% of value Ethyl alcohol 6.6 cents/kg + 3% of value Men's overcoats 77.2 cents/kg + 20% of value Wool gloves 33.1 cents/kg + 7.4% of value US tariffs are expressed as a dollar amount per unit of imported product, a percentage of its value, or a combination of the two. Source: US Int'l. Trade Commission, Tariff Schedules of the United States, 1998 Carbaugh, Chap. 16

  8. International Trade Economic effects of a tariff Price SUS Equilibrium without trade World price with tariff Imports with tariff World price DUS Imports without tariff Carbaugh, Chap. 16

  9. Tariffs Estimated consumer cost of saving US jobs through trade protection Consumer cost Industry per job Meat $1,850,000 Maritime transport 1,138,775 Dairy 484,878 Sugar 390,200 Motor vehicles 208,824 Textile and apparel 182,545 Steel 128,063 Nonrubber footwear 111,702 Source:US Int'l Trade Commission, Economic Effects of Significant US Import Restraints, December 1995 Carbaugh, Chap. 16

  10. Trade Restrictions Hourly compensation costs for production workers in manufacturing, 1997 (in US$) Germany $28.28 Norway 23.72 Sweden 22.24 Finland 21.44 Japan 19.37 United States 18.24 Canada 16.55 Singapore 8.24 South Korea 7.22 Taiwan 5.89 Mexico 1.75 Hourly pay Country ($/hour) Source:US Dept of Labor, Bureau of Labor Statistics Carbaugh, Chap. 16

  11. NAFTA Potential winners and losers in the US under trade with Mexico US Winners US Losers Potential effects of trade liberalization (example: NAFTA) Higher skill, higher tech businesses could benefit from reduced trade barriers. Labor-intensive businesses that relocate to Mexico could benefit by reducing production costs. Domestic businesses that use imports as components in the production process may save on production costs. Labor-intensive, lower wage, import-competing businesses could lose from reduced protections (tariffs) on competing imports. Workers in import-competing businesses could lose if their businesses close or relocate. Potential effects of trade liberalization modified by workers' rights adherence in Mexico Adherence to workers' rights requirements in Mexico could raise Mexican labor costs, making US exports more competitive in Mexico. Consequently, workers in US import-competing businesses could be under less pressure to either give back wages or have their workers’ rights protections threatened. Some US firms wanting to relocate to Mexico to save on labor costs could be discouraged from doing so because workers' rights adherence could increase their production costs. Carbaugh, Chap. 16

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