Download Chapter 5 - McGraw Hill Higher Education

International
Linkages
United States
and World
Trade
5
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
The United
States and the
Global Economy
End Show
5-1
Copyright 2008 The McGraw-Hill Companies
Chapter Objectives
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-2
• Key Facts About U.S.
International Trade
• Comparative Advantage,
Specialization, and International
Trade
• How Exchange Rates are
Determined in Currency Markets
• How and Why Government
Sometimes Interferes with Free
International Trade
• Role Played by Free-Trade Zones
and the WTO in Promoting
International Trade
Copyright 2008 The McGraw-Hill Companies
International Linkages
International
Linkages
Trade Flows
Goods & Services
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
United
States
Economy
Resource Flows
Capital & Labor
Other
Information &
National
Technology Flows
Economies
Information & Technology
Last Word
Financial Flows
Money
Key Terms
End Show
5-3
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Volume and Pattern
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
• Volume
• Dependence
• Trade Patterns
• Financial Linkages
Key Terms
End Show
5-4
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Volume and Pattern
International
Linkages
Exports of Goods & Services – 2005
United States
and World
Trade
Selected Countries as a Percent of GDP
Belgium
87%
71%
Netherlands
South Korea
44%
Germany
40%
Canada
38%
New Zealand
28%
Italy
27%
France
26%
26%
United Kingdom
25%
Spain
13%
Japan
11%
United States
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
Source: IMF, International Financial Statistics, 2005
5-5
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Volume and Pattern
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
U.S. Trade as a Percentage of GDP
Inflation Adjusted to Dollar Value in 2000
18
Exports
16
Percentage of GDP
International
Linkages
14
12
10
8
6
4
Imports
2
Key Terms
0
1975
End Show
1980
1985
1990
1995
2000
2005
Source: Bureau of Economic Analysis
5-6
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Volume and Pattern
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
Principal U.S. Exports & Imports – 2005
in Billions of Dollars
Exports
$68.6
Chemicals
53.5
Consumer Durables
Agricultural Products 52.9
47.2
Semiconductors
Computers
45.5
Generating Equipment 33.2
Automobiles
30.4
Aircraft
29.1
Medical
27.6
Telecommunications 25.6
Imports
$251.6
Petroleum
123.7
Automobiles
Household Appliances 97.1
93.3
Computers
Metals
83.8
Clothing
79.1
Consumer Electronics 47.3
Generating Equipment 43.1
Semiconductors
37.1
Telecommunications 25.8
End Show
Source: Department of Commerce Data
5-7
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Volume and Pattern
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
U.S. Exports & Imports – 2005
in Goods by Area
Exports to
Industrial Countries
Developing Countries
Total
Value
Billions
Of Dollars
$483
410
$893
Imports from
Industrial Countries
Developing Countries
Total
Value
Billions
Of Dollars
$770
904
$1,674
Imports Exceed Exports by $781 Billion
Last Word
Key Terms
That’s over 15,620,000 jobs at $50,000 each!
End Show
Was $484 Billion in 2002 & $346 Billion in 1999
Source: Survey of Current Business, April 2006
5-8
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Rapid Trade Growth
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-9
• Transportation
Technology
• Communications
Technology
• General Decline in Tariffs
• Multinational
Corporations
Copyright 2008 The McGraw-Hill Companies
United States and World Trade
Participants in International Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
GLOBAL PERSPECTIVE
Comparative Exports - 2004
0
100
Germany
United States
China
Japan
France
Netherlands
Italy
United Kingdom
Canada
Belgium
South Korea
Mexico
Russia
Taiwan
Singapore
200
300
400
500
600
700
800
900
$912
$819
$593
$566
$449
$358
$349
$347
Billions of Dollars
$317
$307
$254
$189
$184
$183
$180
Source: World Trade Organization
5-10
Copyright 2008 The McGraw-Hill Companies
Specialization and Comparative
Advantage
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
• Absolute Advantage
• Comparative Advantage
–Comparative Costs
• Specialization and Trade
• Terms of Trade
W 5.1
Last Word
Key Terms
End Show
5-11
O 5.1
Copyright 2008 The McGraw-Hill Companies
The Foreign Exchange Market
GLOBAL PERSPECTIVE
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-12
Exchange Rates
Foreign Currency Per U.S. Dollar
$1 Will Buy
44.3 Indian rupees
.57 British pounds
1.16 Canadian dollars
10.7 Mexican pesos
1.31 Swiss francs
.83 European euros
117 Japanese yen
975 South Korean won
7.8 Swedish kronors
Copyright 2008 The McGraw-Hill Companies
March 2006
The Foreign Exchange Market
Exchange Rates
International
Linkages
Dollar – Yen Market
United States
and World
Trade
The Foreign
Exchange
Market
Government
and Trade
P
Sy
Dollar price of 1 yen
Specialization
and
Comparative
Advantage
G 5.1
Exchange Rate:
$.01=¥1
.01
Last Word
Dy
Key Terms
Qe
End Show
Quantity of yen
5-13
Copyright 2008 The McGraw-Hill Companies
Q
The Foreign Exchange Market
Exchange Rates
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
Changing Rates:
Depreciation and Appreciation
Dollar Price of
Foreign
Currency
Rises
Equals
Foreign
Currency Price
Of Dollar
Falls
End Show
5-14
Equals
Copyright 2008 The McGraw-Hill Companies
International
Value of Dollar
Falls (Dollar
Depreciates)
Equals
Equals
International
Value of Foreign
Currency Rises
(Foreign Currency
Appreciates)
Government and Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
Trade Impediments
and Subsidies
• Protective Tariffs
• Import Quotas
• Nontariff Barriers
• Export Subsidies
End Show
5-15
Copyright 2008 The McGraw-Hill Companies
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
Government and Trade
Why Government Trade
Interventions?
• Misunderstanding the
Gains from Trade
• Political
Considerations
• Costs to Society
End Show
5-16
Copyright 2008 The McGraw-Hill Companies
Government and Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-17
Multilateral Trade Agreements
And Free-Trade Zones
• Trade War
• Smoot-Hawley Tariff Act of
1930
• Reciprocal Trade
Agreements Act of 1934
– Negotiating Authority
– Generalized Reductions
– Most-Favored-Nation Clauses
Copyright 2008 The McGraw-Hill Companies
Government and Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
Multilateral Trade Agreements
And Free-Trade Zones
• General Agreement on
Tariffs and Trade (GATT)
–Equal Trade Treatment
–Reduction in Tariffs
–Elimination of Import
Quotas
• Uruguay Round
End Show
5-18
Copyright 2008 The McGraw-Hill Companies
Government and Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Multilateral Trade Agreements
And Free-Trade Zones
• World Trade
Organization (WTO)
• Doha Round (Doha,
Qatar)
• The European Union
(EU)
–EU Trade Bloc
–The Euro
Key Terms
End Show
5-19
Copyright 2008 The McGraw-Hill Companies
Government and Trade
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-20
Multilateral Trade Agreements
And Free-Trade Zones
• North American Free
Trade Agreement
(NAFTA)
–Canada, Mexico, and U.S.
–Fears and
Accomplishments
–Job Creation
–Higher Standard of Living
Copyright 2008 The McGraw-Hill Companies
Government and Trade
GLOBAL PERSPECTIVE
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
Global Competition
Top 12 Globalized Nations - 2005
1-Singapore
2-Ireland
3-Switzerland
4-United States
5-Netherlands
6-Canada
7-Denmark
8-Sweden
9-Austria
10-Finland
11-New Zealand
12-United Kingdom
Source: A. T. Kearney, Foreign Policy
5-21
Copyright 2008 The McGraw-Hill Companies
Petition of the Candlemakers
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-22
• Problems with Protectionism
• Satire on Candlemakers 1845
• Sought to Remove Competition
from Trade on Light Sources
• The Sun is also a Light Source
• Close Out All Natural Light to
Increase Demand for Candles and
Raw Materials to Make Them
• Taken to Extreme, There is No
Way to Remove Competition
Copyright 2008 The McGraw-Hill Companies
Key Terms
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Key Terms
End Show
5-23
• multinational
corporations
• comparative
advantage
• terms of trade
• foreign exchange
market
• exchange rates
• depreciation
• appreciation
• protective tariffs
• import quotas
• nontariff barriers
• export subsidies
• Smoot-Hawley Tariff
Act
Copyright 2008 The McGraw-Hill Companies
• Reciprocal Trade
Agreements Act
• most-favored-nation
clauses
• General Agreement
on Tariffs and Trade
(GATT)
• World Trade
Organization (WTO)
• Doha Round
• European Union (EU)
• trade bloc
• euro
• North American Free
Trade Agreement
(NAFTA)
Next Chapter Preview…
International
Linkages
United States
and World
Trade
Specialization
and
Comparative
Advantage
The Foreign
Exchange
Market
Government
and Trade
Last Word
Measuring
Domestic Output
and National
Income
Key Terms
End Show
5-24
Copyright 2008 The McGraw-Hill Companies