Transcript Chapter 37 - International Trade

The world is becoming a smaller place. What happens in Tokyo affects what
happens in New York and Dallas, Texas.
There is over $12 trillion in world trade.
Volume of Trade
The importance of exports has grown.
Exports as % of GDP
Belgium
91%
Netherlands
75%
Germany
47%
S. Korea
45%
China
35% [1/3 bought by U.S.]
Canada
35%
[If we sneeze, Canada catches a cold]
Italy
29%
France
27%
New Zealand
27%
Spain
26%
United Kingdom 26%
France
26%
Mexico
25%
[80% of Mexico’s exports are sold to U.S.]
Japan
18%
United States
13%
[$1.8 trillion of a $14.8 trillion economy in 2010]
World
25%
2010
13%
U.S. Imports
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China
$365
Canada
$276
Mexico
$230
Japan
$120
Germany
$83
United Kingdom $50
South Korea
$49
France
$39
Venezuela
$32
Saudi Arabia $31
Italy
$28
U.S. Exports
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Canada
Mexico
China
Japan
United Kingdom
Germany
Netherlands
South Korea
Singapore
France
Brazil
Belgium
$249
$163
$92
$61
$49
$48
$35
$39
$29
$27
$35
$26
1. Revenue Tariffs – applied to products not produced domestically
[bananas, coffee]. These are normally low & their purpose is to provide
income for the government.
2. Protective Tariffs – tax on imports designed to protect domestic
producers from foreign competition [autos, shoes, textiles].
*We have tariffs on 8,753 products (70% of our imports). They add about
3% to prices. They cost consumers an extra $70 billion. [$1,000 per family]
Switzerland
1st
Singapore
2nd
3rd
Sweden
4th
The 2.6%
2.6%is 4rth lowest
behind Singapore,
Ireland, & Switzerland.
2.6%
Global Competition
Top 12 [Free Traders] - 2010
1-Switzerland
2-United States
3-Singapore
4-Sweden
5-Denmark
6-Finland
7-Germany
8-Japan
9-Canada
10-Netherlands
11-New Zealand
12-United Kingdom
Smoot-Hawley Tariff of 1930
-so high it decreased imports
60% and hurt all international trade. International trade plummeted
62% from $60 billion in 1928 to $25 billion in 1938.
The next day the stock market
tanked and the economy was dead
for 10 years.
Unemployment went from 8% to 16%
after it was introduced, then marched
up to 25% by 1933.
Reed Smoot
Willis Hawley
Tariffs on over 12,000 products went up. Agricultural tariffs
went from 20% to 34%, clocks from 45% to 55%, woolen
products from 50% to 60%, wines, spirits, & beverages from
36% to 47%, corn and butter tariffs were doubled, over 800
production items were taxed. Domestic prices fell by over
25% while overseas prices rose 60%. By 1933, world trade
was about 1/3 of the 1929 level. All nations were losers. This
policy put the
“Great”
in the
Depression.
May 5, 1930
1,028 Economists Ask Hoover
To Veto Pending Tariff Bill
Professors in 179 colleges and
other leaders assail rise in tariffs
as harmful to country and sure
to bring reprisals.
Willis Hawley and Reed Smoot
And Hoover replied:
1. Reciprocal Trade Act – 1934-Roosevelt said to other countries,
“If you’ll lower your tariffs, we’ll reciprocate and lower
ours by the same percent.” [up to 50% of existing rates]
There were 8 rounds of GATT. The 8th established the WTO.
2. GATT[General Agreement on Tariffs & Trade] 1947–1995
- started with 23 nations and ended with 128 nations –
set the rules for world trade. GATT had no mechanism to
enforce their rules. Tariffs fell from 40% to 4%.
3. GATT was based on these three principles.
A. Equal, nondiscriminatory treatment for all member nations
B. The reduction of tariffs
C. The elimination of import quotas [Based on cooperation and
negotiation, or “I’ll lower mine if you will lower yours.”]
[There were 8 rounds; here are the last 3.
WTO
GATT protected intellectual property (patents,
trademarks, and copyrights). GATT in 1995 was
replaced by the World Trade Organization [WTO].
These agreements have already boosted the world’s
GDP by $6 trillion [8%]. [*153 nations]
U.S. consumers will gain $30 billion annually.
WTO
[*another 30 hold observer status waiting to become members]
We have trade restrictions on oranges from S. America, machine tools from Switzerland, TVs
from S. Korea, computer screens from Japan, and steel from nearly everywhere on earth. There
are also restrictions on watches, tobacco, ships, ice cream, cheese, clothing, sugar, & hundreds
of other products. Sugar quotas for 12,000 sugar growers cost consumers $3 billion per year
[cost twice the world price -22 cents per pound v. 10 cents per pound for the world price].
The annual cost of retaining just 1 job through trade restraints is $1 million in specialty
steel, $550,000 in nuts and screws, $240,000 in orange juice, and $200,000 in glassware.
In 1980, U.S. auto companies sold 1 million fewer cars than in 1979. The “Big 3” lost over
$4 billion. The “Big 3” demanded protection so they could retool for smaller cars. Japan agreed to
voluntarily freeze auto exports to 1.65 million from 1981-1983 & 1.85 million in 1984. With fewer
choices, domestic car prices rose $2,000 and Japanese car prices rose $2,500. We had a
smaller selection, had to wait longer and paid $15.7 billion extra.
*The fake one is on the right [selling for $300].
Offenders face fines of up to $5 million & imprisonment
of up to 20 years, and seizure of all fake products.
One of these Honda motorcycles is a Chinese knockoff.
Counterfeiting cost U.S. companies $250 billion a year.
Global counterfeiting cost companies $600 billion a year. China has
2/3 of all counterfeit products. Some of the counterfeiting goods include:
16.5 million Lipitor tablets, $1 million worth of H-P inkjet cartridges,
phony Viagra; cigarettes, $100 bills, 11,000 fake parts for Nokia phones,
Callaway Golf clubs, Intel Computer chips, shampoos, soaps, teas, 10%
of medicines, bogus car parts, Sony PS2’s, & cars.
China’s policy seems to be:
“If you can make it, we can fake it.”
Knock-off
148
WTO
WTO Objectives:
[They have settled over 300 disputes (broken promises)]
1. Accord national treatment to imported goods
[regulate “M” the same as domestic goods]
2. Accord “most favored nation status” to member
nations [charge all the same tariffs and quotas]
3. Eliminate tariffs and non tariff barriers.
4. A government must find the best goods internationally.
Reductions in Tariffs Worldwide
WTO
New Rules to Promote Trade in Services
Reduction in Agricultural Subsidies
Intellectual Property Protections
Phasing Out Textile Quotas and Tariffs
Tariffs were totally eliminated in 2008
WTO settled more disputes in 10 years than
GATT did in 50 years.
The Dispute: The EU restricted banana imports
to bananas from only a few countries that were
former colonies. As a result, the price paid for
bananas in European markets was about twice the
price of bananas in the U.S. The world’s largest
banana companies, Dole, Chiquita, and Del Monte,
headquartered in the U.S., complained that they were
being harmed because their bananas, which came
from other countries of Central and South America
were excluded from the EU system, which favored a
few former colonies. A man from India holds the record
for eating bananas (91) in 30 min.
Ruling: The WTO ruled that the EU restrictions on banana
imports were harmful and against the rules of trade to which
all nations had agreed. This is but one example of the role of
the WTO in promoting fair and free international trade.
• This would include South, Central and North
America, from Anchorage to Patagonia,
a population of 800 million. This would be
the largest free-trade zone on the planet.
President Bush favored this. It includes 34
nations with a combined output of $15 trillion.
FTAA
Import Quotas – sets a maximum amount for
an import. They may be a more effective protective
device than tariffs which do not limit the amount
of goods entering a country.
The vote for CAFTA
was 217-215.
Some don’t like these
trade agreements.
• CAFTA is a comprehensive trade agreement between the U.S.,
Costa Rica, the Dominican Republic, El Salvador,
Guatemala, Honduras, and Nicaragua.
• It eliminated tariffs on $46 billion worth of currently traded
goods to 44 million customers. CAFTA is considered to be a
stepping stone to the FTAA which would include 34 countries.
• The CAFTA-DR is the first free trade agreement between the
United States and a group of smaller developing economies.
Non-tariff Barriers –licensing requirements, re-inspections,
unreasonable standards pertaining
unnecessary bureaucratic red tape
The Japanese conduct stringent
that cost the Japanese consumer
33%
22%
to quality and safety, or
in customs procedures.
re-inspections of our autos
an extra $500.00.
31%
86%
23%
25%
Started with
these 15
15 initial mbrs
Joined by
these 12
by 2007
These 17 countries now use the Euro: Andorra, Austria, Belgium,
Finland, France, Germany, Greece , Ireland , Italy, Kosovo ,
Luxembourg, Monaco, Montenegro, Netherlands, Portugal, San
Marino, and Cyprus [2008], Malta [2008], Slovakia [2009] & Estonia
[2011]. 4 small countries also use it as their official currency.
Eurozone
Eurozone
1. Austria
2. Belgium
3. Finland
4. France
5. Germany
6. Greece
7. Ireland
8. Italy
9. Luxembourg
10. The Netherlands
11. Portugal
12. Slovenia
13. Spain
Eurozone population of 320 M.
[27 nations – 475 million people] [“Eurozone” includes 17
Euro nations] [GDPs of 27 total around $14.5 trillion]
*It's like a "U.S. of Europe” [imagine each state in the U.S.
having its own currency. If you wanted to buy a product in
Louisiana, you would have to buy Louisiana currency and pay
a 1-2% fee for doing so.) [After independence, states
printed their own money. Formerly, there were tariffs and
quotas against other European countries.
The single currency will create efficiencies leading to
faster growth & facilitate the establishment of a kind of U.S.
of Europe. There will be huge benefits from free trade.
The elimination of trade barriers alone will boost European
GDPs an average of 6% & lower prices by about 6%.
About 4-5 million more jobs will be created all over
Europe.
European free trade will increase production in two ways.
1. Lower costs, which will increase output.
2. It will increase productivity of capital and labor as those
factors are allocated on the basis of comparative advantage.
Incomes will rise, increasing AD. Europe will be more
prosperous.
So, there will be a central bank [European Central Bank] and a
single defense force, or a kind of national sovereignty. This is
the goal. Each nation still has its own central bank but they will
have no authority to conduct monetary policy. They will operate like
regional banks of the Fed.
orth
merican
ree
rade
The U.S. has $967 billion total trade
with NAFTA. Exports were $412 billion
and imports were $555 billion.
greement
Mexico, the U.S., and Canada
decided to get rid of import taxes
between one another. They
joined together to create the
world’s largest free trade zone.
Many workers feel that
NAFTA is giving them the
Shafta
Labor unions in Canada and the U.S.
oppose NAFTA. They see big companies
taking jobs out of the U.S. & Canada because
they can do business cheaper in Mexico.
Companies can pay employees less in
Mexico, since work is harder to get there.
Average factory wages:
United States
Mexico
China
$136/day
$8/day
$3/day
[factors in medical & pension]
And some companies have even
left Mexico to move to Asia!
Source: Univ. of Wisconsin,
http://www.uwec.edu/geography/Ivogeler/w188/border/maquil.htm
[U.S.,
GDP
Canada,
U.S.
Canada
& Mexico
Mexico
]
$14.6 Tr. $1.5 Trillion $1.1 Trillion
[30% live on less than $2 day]
Population 310 mil.
33 million
109 million [50% in poverty]
[Only 28% grad. high school]
Per Capita $48,000
$40,000
$13,500 [ave. ed. Level is 6
Ave. Hourly $16.00
$17.00
$2.00
th
grade]
[.60 min. wage]
NAFTA is a $17 trillion market for 452 million
consumers. [1,000 page document]
NAFTA rolled back 20,000 tariffs by 2008.
American consumers are saving $20 billion per year.
Trade within NAFTA totals over $1 trillion.
Texas’ exports to Mexico have increased from $19 B to $56 B
60 B
Signing of NAFTA
George Bush
Carlos Salinas
De Gortari
$56.0
50 B
Brian Mulroney
40 B
30 B
20 B
$16
10 B
$8.9
$6.1
$5.3
$5.2
$5.1
Mexico Canada China Netherlands S.Korea Singapore Brazil
$3.2
Taiwan
Signing of NAFTA
60 B
Carlos Salinas
De Gortari
50 B
George Bush
Brian Mulroney
40 B
30 B
20 B
$17.5
$14.2
$11
10 B
$9.7
$5.9
Mexico Canada Japan
$5.8
$4.4
$4.1
$3.9
China S. Korea Hong Kong GermanyTaiwan U.K.
Signing of NAFTA
60 B
Carlos Salinas
De Gortari
50 B
George Bush
Brian Mulroney
40 B
30 B
20 B
10 B
$4.3
$3.4
$3.2
$2.4
$2.1
$2.0
$1.4
$1.4
Brazil Venezuela SwitzerlandCanada Columbia Mexico Domin.Rep Chile
$1.1
Peru
Mexico buys 70% of its imports from Texas.
Texas’ exports to Mexico have increased from
$19 billion in 1994 to $56 billion in 2009.
U.S. goods exported to Mexico have gone from
$51 billion to $152 billion, supporting over
1 million jobs in the U.S. Imports from Mexico
have more than tripled to $216 billion.
encourages more world-wide investment
in Mexico. This is enhancing their productivity and
income. Some of this increased income is being used
used to buy U.S. exports. A higher standard of
living in Mexico will help stem the flow of illegal
immigrants to the U.S.
NAFTA
NAFTA, 2010
Population: 442 million
Combined GDP: 16 Trillion
3-Way Trade: $941 Billion
U.S. – Canada Trade
U.S. exports to Canada
$249 B
U.S. imports from Canada $276 B
Canadian-Mexican Trade
Canadian exports to Mexico
$8.3 B
Canadian imports from Mexico $16.5 B
U.S. - Mexico Trade
U.S. exports to Mexico
$163 B
U.S. imports from Mexico $229 B
1. Most of our imports come from with (developed/developing) nations.
2. Quantitatively, our most important trade partner is
(Japan/Mexico/Canada/Germany/Djibouti).
3. American exports of goods/services average about (30%/25%/13%/4%) of GDP.
4. According to the theory of comparative advantage, a good should
be produced in that nation where its cost is (most/least) in terms
of alternative goods which might otherwise be produced.
5. The ratio at which nations will exchange two goods is the
(domestic comparative [opportunity] cost/terms of trade).
6. A (quota/tariff) is an excise tax on imported goods.
7. If the U.S. eliminates tariffs on Cuban rollerblades, we would expect the price
of Cuban rollerblades to (increase/decrease) in the U.S. Also employment
would (increase/decrease) in the Cuban rollerblade industry.
8. The Smoot-Hawley Tariff of 1930 established very (low/high)
tariffs on goods imported to the U.S.
9. GATT included over 100 nations and emphasized tariff (reductions/increases)
for members, and (increasing/decreasing) import quotas.
10. The Reciprocal Trade Agreements Act of 1934 brought about
considerable (increases/reductions) in American trade barriers.
11. The European Union (abolished/increased) tariffs among one another
and established a system of common tariffs with non-member nations.
12. NAFTA included the U.S., Mexico, and (Japan/Canada/Djibouti).
13. Proponents of NAFTA contend it will (incr/decr) the flow of illegal immigrants
(incr/decr) U.S. exports by raising productivity & income in Mexico, and enable
the U.S. to obtain (more/less) total output from its scarce resources.