Document 7483913
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International Trade
Outline
•How open is the U.S. economy?
•Patterns and Trends in International Trade
•Gains from International
•International Trade Restrictions
An index of openness
Let
•O denote the index of openness
•X is exports
•M is imports
•GDP is gross domestic product
Thus, we have:
X M
100
GDP
This is a
simple
measure of
the relative
importance
of the foreign
sector
Imports + Exports as a Percent of U.S. GDP, 1969-2000
28
percent
24
20
16
12
8
70
75
80
85
90
95
00
What do we
trade with
other
nations?
Source: Bureau of Economic Analysis
Who are our
major trading
partners?
Source: Bureau of Economic Analysis
Exports and Imports of the United States, 1965-2001
Billions of 1998 dollars
1600
www.economagic.com
1200
800
400
0
65
70
75
80
EXPORTS
85
90
95
IM PORTS
00
Exports and Imports of the United States, 1997-2001
Billions of 1998 dollars
1600
www.economagic.com
1400
1200
1000
800
97:1 97:3 98:1 98:3 99:1 99:3 00:1 00:3 01:1 01:3
EXPORTS
IM PORTS
Top Exporting Countries, 2002
U.S.
694
Germany
612
Japan
416
France
330
China
326
U.K.
276
Canada
253
Italy
252
Netherlands
243
Belgium
213
100
200
300
400
500
600
Billions of U.S. Dollars
Source: World Trade Organization
700
800
Comparative Advantage
Recall that a county has
a comparative
advantage in the
production of a good of
service if it can produce
a unit at lower
opportunity cost than its
trading partners
Why does
the U.S.
export
aircraft?
Why
does
the
U.S.
import
T-shirts
The
gains
from
trade
Notice that by specializing
and trading according to
comparative advantage, both
China and the U.S. reach a
point outside their respective
domestic PPFs.
Trade Restrictions
The term “protectionism” refers to any
measure that has the effect of reducing
the quantity of imported goods or
services.
Commercial policy: Government policy that
influences international trade flows.
Types of Trade Restrictions
•Trade embargos: Prohibitions on the importation
(or exportation) of goods and services. Examples:
1973 Oil embargo, trade embargo with Iraq,
embargo on imported sugar from Cuba.
•Tariffs: Taxes imposed on imported goods.
•Quotas: Limits on the quantity or value of goods or
services that can be imported or exported.
Examples: The textile quota, the sugar quota,
export quota on raw timber.
•Subsidies: payments by government to exporters.
These stimulate trade by allowing the exporter to
charge a lower price.
•Government procurement: Most nations require their
part 2 Example: the
governments to buyProtectionism,
from domestic producers.
1933 “Buy American” Act applicable to federal agencies.
•Non-tariff trade barriers: Other policies that have the effect of
reducing the flow of imports or exports. Example: Health and
safety standards, import licensing, product design standards,
bureaucratic red tape.
The Japanese trade ministry
(MITI) decided that snow skis
made in the U.S. were not safe
enough for Japanese ski
enthusiasts
Other examples: European ban on hormone
treated beef and genetically-modified soybeans
Average Tariff Rates, 2001
31
India
Nigeria
23
Pakistan
21
20
Kenya
15
China
Brazil
13
10
15
20
25
Percent
Source: World Trade Organization; World Bank
30
35
Average Tariff Rates, 2001
Japan
5.1
Canada
4.4
U.S.
4.0
EU
3.9
3.6
3.8
4.0
4.2
4.4
4.6
Percent
Source: World Trade Organization; World Bank
4.8
5.0
5.2
Arguments for protectionism
•Save domestic jobs
•Dumping
•Government revenue creation.
•National security
•Infant industries
President Bush’s trade
representative Robert
Zoeller says “I want fair
trade.”
Costs of protecting U.S. jobs from foreign
competition
Industry
Autos
Cost to Consumers
Per Job Saved
$105,000
Color TVs
420,000
Motorcycles
150,000
Athletic Footwear
30,000
Apparel
37,000
Specialty Steel
1,000,000
Glassware
200,000
Sugar
60,000
Ball Bearings
90,000
Source: Coughlin, et al. (1988) and Hufbauer, et al. 1986.
Tariffs as a percentage of total government revenue
Country
U.K.
Japan
U.S.
Costa Rica
Ghana
Dominican
Republic
Lesotho
Source: World Bank
Tariffs as a % of
Government Revenue
0.1%
1.2
1.5
16.1
31.2
44.2
55.1