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International Trade

U4. International Trade. Some Key Facts. U.S. Trade Deficit $782 Billion in Goods in 2005 U.S. Trade Surplus $58 Billion in Services in 2005 U.S. Exports Chemicals, Consumer Durables, Agricultural Products, Semiconductors U.S. Imports Petroleum, Automobiles, Appliances, Computers

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International Trade

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  1. U4 International Trade

  2. Some Key Facts • U.S. Trade Deficit $782 Billion in Goods in 2005 • U.S. Trade Surplus $58 Billion in Services in 2005 • U.S. Exports Chemicals, Consumer Durables, Agricultural Products, Semiconductors • U.S. Imports Petroleum, Automobiles, Appliances, Computers • Some of Same Categories are Exported and Imported • Canada Largest U.S. Partner Quantitatively

  3. Some Key Facts • U.S. Sizable Trade Deficit with China • U.S. Dependence on Oil is Reflected • U.S. has World’s Highest Trading Volume • Exports are 11% of U.S. Output • China a Major Trade Force • International Trade Links World Economies • International Trade is the Center of Policy Debates

  4. GLOBAL PERSPECTIVE Some Key Facts Shares of World Exports, Selected Nations Percentage Share of World Exports, 2004 0 2 4 6 8 10 12 Germany United States China Japan France Netherlands Italy United Kingdom 10.0 8.9 6.5 6.2 4.9 3.9 3.8 3.8 Source: World Trade Organization

  5. The Economic Basis for Trade • Labor-Intensive Goods-digital cameras, video game consoles (Japan) • Land-Intensive Goods-wheat, wool, meat (Brazil) • Capital-Intensive Goods-automobiles, machinery (U.S., Germany) • Comparative Advantage (see handout)

  6. 45 45 40 40 35 35 30 30 25 25 Coffee (Tons) Coffee (Tons) 20 20 15 15 10 10 5 5 0 0 5 10 15 20 25 30 5 10 15 20 Wheat (Tons) Wheat (Tons) The Economic Basis for Trade (a) United States (b) Brazil 12 A 4 B 8 18

  7. 45 45 40 40 35 35 30 30 25 25 Coffee (Tons) Coffee (Tons) 20 20 15 15 10 10 5 5 0 0 5 10 15 20 25 30 5 10 15 20 Wheat (Tons) Wheat (Tons) The Economic Basis for Trade (a) United States (b) Brazil C’ Trading Possibilities Line C Trading Possibilities Line c A’ 12 A B’ 4 B W w w’ 8 18

  8. The Economic Basis for Trade • Trade with Increasing Costs • The Case for Free Trade

  9. Supply and Demand Analysis of Exports and Imports • World Price • Domestic Price • Supply and Demand in the United States on the global scale • U.S. Export Supply • Export Supply Curve • U.S. Import Demand • Import Demand Curve *At world prices above domestic equilibrium there are domestic surpluses which are traded/exported at the world price. At prices below $1 there are domestic shortages, therefore imports will increase.

  10. 1.50 1.50 1.25 1.25 Price (Per Pound; U.S. Dollars Price (Per Pound; U.S. Dollars 1.00 1.00 .75 .75 .50 .50 0 0 50 100 Quantity of Aluminum (Millions of Pounds) Quantity of Aluminum (Millions of Pounds) 50 75 100 125 150 Supply and Demand Analysis of Exports and Imports U.S. Aluminum Market • U.S. Domestic • Aluminum Market (b) U.S. Export Supply and Import Demand Surplus = 100 Sd c Surplus = 50 U.S. Export Supply b a U.S. Import Demand x Shortage = 50 y Dd Shortage = 100

  11. Trade Barriers • Revenue Tariff-tax on product that is not produced domestically (coffee and bananas in U.S.) • Protective Tariff-designed to shield domestic producers from foreign competition • Import Quota-maximum amount of an import • Nontariff Barrier (NTB)-restrictive licensing • Voluntary Export Restriction (VER)-foreign firms voluntary limit number of exports • Economic Impact of Tariffs (ie. tariff raises price of Blu Ray DVD players from Japan) • Direct Effects • Decline in Consumption • Increased Domestic Production • Decline in Imports • Tariff Revenue • Indirect Effect-Japan buys fewer U.S. exports

  12. Trade Barriers • The Case for Protection: A Critical Review a) Military Self-Sufficiency Argument b) Diversification-for-Stability Argument c) Infant Industry Argument d) Protection-Against-Dumping Argument • Dumping to drive out domestic competitors or to price discriminate e) Increased Domestic Employment Argument • Smoot-Hawley Tariff Act of 1930 (reduce imports)-result…Great Depression f) Cheap Foreign Labor Argument

  13. Trade Adjustment Assistance • Trade Adjustment Assistance Act of 2002-provides cash assistance for up to 78 weeks for those displaced by imports or plant relocations abroad • Offshoring-shifting work done by Americans to workers located in other nations (helps global economy, could create more domestic jobs in long-run) • The World Trade Organization (WTO)

  14. The WTO Protests Last Word • Various Protest Groups Angrily Target WTO • Environmentalists, Socialists, Anarchists • Labor Protections/Labor Standards • Environmental Standards • Desire to Liberalize Trade Through Multilateral Negotiations • International Labour Organization (ILO)-strives to improve wages and working conditions

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