Top 5 Countries with which the U. S. Trades, 2012

1. Top 5 Countries with which the U. S. Trades, 2012

2. Top 5 Countries with which the U. S. Trades, 2012

3. Top 5 Countries with which the U. S. has a trade deficit, 2012

4. Top 5 Countries with which the U. S. has a trade deficit, 2012

5. Top 5 Countries with which the U. S. has a trade surplus, 2012

6. Top 5 Countries with which the U. S. has a trade surplus, 2012

7. Chapter 5:The Balance of Paymentsand InternationalEconomic Linkages

8. Balance of Payments ???

9. Balance of Payments Net value of all economic transactions - including trade in goods and services, transfer payments, loans, and investments - between residents of the same country and those of all other countries.

10. BoP and GDP

11. BoP and GDP – 2Q/2013Source: Bureau of Economic Analysis[www.bea.gov]

12. BoP and GDP – 2Q/2013[GDP = C + I + G + (X – M)] 69% 19% 16% -3%

13. U. S. Balance of Trade [Goods](1954 – 2012; $Billions)

14. Balance of Payments Accounts • Current Account • Financial Account • Capital Account • Errors and Omissions • Reserves and Related Items

15. Current Account Balance$ Billions, 2011

16. Balance of Payments Accounts • Current Account: (millions) • Goods - 2012: - $735,700 • Services - 2012: + $195,300 • Net Amount - $540,400

17. Balance of Payments Accounts • Financial Account • Direct foreign investment • Portfolio investment • Other capital investment – short-term financial transactions

18. Balance of Payments Accounts • Capital Account: • Debt forgiveness • Assets transferred by people who move from one country to another • Sale of patents and trademarks

19. Balance of Payments Accounts • Double Entry System: • debits offset credits • sum of transactions equals zero • unaccounted for differences are recorded as statistical discrepancy

20. Balance of Payments Accounts • Debit Entries: • purchase of foreign goods, services, or assets • decline in foreign liabilities

21. Balance of Payments Accounts • Credit Entries: • sale of domestic goods, services, or assets • increase in foreign liabilities

22. Balance of Payments Accounts • Current Account • Financial Account • Capital Account • Errors and Omissions • Reserves and Related Items • ∑ = 0

23. Balance of Payments Accounts • Current Account (+/-) • Financial Account (-/+) • Capital Account • Errors and Omissions • Reserves and Related Items • ∑ = 0

24. International Account Relationships

29. Americans Are Poor Savers[OECD, 1980-88]

30. U. S. Balance on Goods, Services,and Income 1981-2007 ($, Billions)

31. U. S. Balance of Trade, 1954-2012[Goods & Services; $billions]

32. How to cope with the trade deficit? • Currency depreciation • Protectionism • End foreign ownership of U. S. assets • Increase the savings rate

33. Should We Devalue the $? • Overvalued currency • tax on exports; subsidy to imports • Weaker currency should reduce deficits • Contrary to U. S. experience • “J-curve” theory

35. Protectionism:Tariffs, Quotas, etc. • Each raises domestic prices and erodes purchasing power • Lower standard of living • Tend to reduce both imports and exports - deficit remains unchanged

36. “Clinton Imposes Tariffs on Steel Imports That Exceed Quota”[New York Times, 2-12-00] • “President Clinton imposed tariffs on steel imports valued at $410 million today, answering pleas from steel makers and labor unions but raising tensions with South Korea, Brazil, Germany, Japan and other major trading partners.”

37. “Clinton Imposes Tariffs on Steel Imports That Exceed Quota”[New York Times, 2-12-00] • “The duties, which take effect immediately, will sharply raise the price of steel imports that exceed a quota pegged at 1998 import levels. The United States says it was flooded with steel imports in 1998 and 1999.”

38. “Clinton Imposes Tariffs on Steel Imports That Exceed Quota”[New York Times, 2-12-00] • “The action places a 10 percent duty on wire rod and a 19 percent surcharge on line pipe, with the duties phased out over three years. The duties will hit only those imports that exceed the 1998 baseline.”

39. “WTO panel rules that U. S. steel duties are illegal”[MSNBC, 7-11-03] • “In a stinging rebuke to the United States, the World Trade Organi-zation ruled Friday that heavy duties on steel imports imposed by the Bush administration violate global trade rules.”

40. “WTO panel rules that U. S. steel duties are illegal”[MSNBC, 7-11-03] • “A three-member panel of trade experts said in a 968-page ruling that the “safeguard” duties of up to 30 percent … were out of line with WTO rules.”

41. “WTO panel rules that U. S. steel duties are illegal”[MSNBC, 7-11-03] • “Washington immediately said it would appeal, and would keep in place the tariffs that President Bush had justified as necessary to protect domestic steel producers against a flood of cheap imports during a restructuring period.”

42. “WTO panel rules that U. S. steel duties are illegal”[MSNBC, 7-11-03] • “In response, the European Union stepped up plans to impose $2.2 billion in retaliatory duties on U. S. imports, ranging from footwear to fruit and vegetables – possibly pricing them out of the market.”

43. “Bush Administration to Impose Tariff on Softwood Lumber from Canada”[Wall Street Journal, 8/10/01] • “The Bush administration announced Friday that it would impose a 19.3% penalty tariff on softwood lumber imported from Canada in retaliation for what the U. S. said were unfair government subsidies given to the Canadian lumber industry.”

44. “Bush Administration to Impose Tariff on Softwood Lumber from Canada”[Wall Street Journal, 8/10/01] • “An economist for the National Association of Home Builders said the higher tariffs could add up to $1,000 to the cost of a new home.”

45. Cross-Border M&A MovesFan Protectionism in EU- The Wall Street Journal, 2/27/06 • “French Prime Minister Dominique de Villepin’s government has arranged for the merger of Suez and Gaz de France in a $37.98 billion deal, in an effort to fend off a hostile bid for Suez by Italy’s Enel.”

46. Cross-Border M&A MovesFan Protectionism in EU- The Wall Street Journal, 2/27/06 • “The efforts to fight off foreign buyers of publicly traded companies come amid a wave of cross-border takeovers in Europe and underscore how nationalism continues to thwart the integration of the Continent’s economy.”

47. Cross-Border M&A MovesFan Protectionism in EU- The Wall Street Journal, 2/27/06 • “The moves will test Europe’s commitment to enforcing a free flow of capital and whether Brussels has the means to face down protectionism in two of the European Union’s most powerful capitals, the Journal writes.”

48. Cross-Border M&A MovesFan Protectionism in EU- The Wall Street Journal, 2/27/06 • “This is the first opportunity the prime minister has to demonstrate he can do something concrete about his doctrine of economic patriotism ...”

49. End/Restrict Foreign Ownership of U. S. Assets • Increase domestic interest rates • Result: more domestic savings • Result: domestic investment will fall • Result: slower economic growth

50. Stimulate Domestic Saving • Provide tax incentives for saving: • Traditional IRA Accounts • Roth IRA Accounts • 401(k) & 403(b)(7) plans • Section 529 plans