Download US export supply

37
C HAPTE R
INTERNATIONAL
TRADE
KEY FACTS ON TRADE
Export Goods & Services 16% of
American GDP
Export Partners
Canada 13%, Mexico 8%, China 4%, Japan 3%
Import Partners
China 15.4%, Canada 11.6%, Mexico, 9.1%,
Japan, 4.9%, Germany 3.7%
$695.9 billion Trade Deficit in 2009
GLOBAL PERSPECTIVE
Shares of World Exports,
Selected Nations, 1999
0
2
4
6
8
10
12
United States
Germany
Japan
France
United Kingdom
Canada
Italy
Source: World Trade Organization
Source: WTO.
Share of World Goods Exports, Leading Exporters, 1950-2008
The first decade of the 21st century have seen a significant shift in the share of global trade of the
leading exporters (United States, Japan, Germany and China more recently). The enduring trend
involving the relative decline of American exports has accelerated to the point that Germany
became the world's leading exporter in 2003 with China climbing to the second rank in 2007.
Japan's share has been declining for about 15 years and was overtaken in 2004 by China. However,
it must be considered that many Japanese (and Korean) corporations have relocated in China parts
of their production facilities, so some Chinese exports are embedded within Japanese supply
chains. There is thus a convergence and an enduring stability of the share of the world's four
leading exporters, hovering in the 30% of total exports range.
ECOMOMIC BASIS FOR TRADE
Distribution of Economic Resources
Different Technologies and/or
Resources
Goods are Differentiated as to
Quality and other Nonprice
Attributes
Labor-Intensive Goods
Land-Intensive Goods
Capital-Intensive Goods
COMPARATIVE ADVANTAGE
Two Isolated Nations
Constant Costs
Straight Line PPF’s
Different Costs
Different Technology and Resources in
Each Nation
Cost Ratio
Self-Sufficiency Output Mix
Trading According to Comparative
Advantage
Graphically...
PRODUCTION POSSIBILITIES
Curve For Each Country
United States
Brazil
45
40
30
Coffee (tons)
Coffee (tons)
35
25
20
15
10
30
25
20
15
10
A
5
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
Total output will be greatest when
Each good is produced by the nation
that has the lowest domestic
opportunity cost for that good.
U.S has comparative advantage in
wheat
Brazil has comparative advantage
in coffee
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
Terms of Trade
Gains From Trade
Improved Options
Trading Possibilities Line
Graphically…
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
Trading
possibilities line
30
Coffee (tons)
Coffee (tons)
35
25
20
15
10
30
25
20
Trading
possibilities line
15
10
A
5
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
Trading
possibilities line
30
Coffee (tons)
Coffee (tons)
35
25
20
15
A’
10
30
25
20
Trading
possibilities line
15
10
A
5
B’
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
30
25
20
15
Trading
possibilities line
The Case For
Free Trade
Coffee (tons)
Coffee (tons)
35
A’
10
30
25
20
Trading
possibilities line
15
10
A
5
B’
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
$1.50
1.25
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
1.25
1.00
If the world price
exceeds the U.S.
price by 25 cents...
.75
.50
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
$1.50
SURPLUS = 50
1.25
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
1.25
EXPORTS = 50
1.00
.75
.50
If the world price
goes further up...
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
.75
.50
If world prices
fall below $1.00...
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
SHORTAGE = 50
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
.75
IMPORTS = 50
.50
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
SHORTAGE = 50
.50
SHORTAGE = 100
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
U.S.
import
demand
.75
IMPORTS = 50
.50
IMPORTS = 100
.25
50
100
Quantity of Aluminum
CANADIAN EXPORT SUPPLY
AND IMPORT DEMAND
Canada’s Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
1.00
.75
.50
SHORTAGE = 50
.25
50
Dd
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
Canada’s Domestic
Aluminum Market
Canadian
export
supply
$1.50
1.25
1.00
Canadian
import
demand
.75
.50
.25
50
100
Quantity of Aluminum
EQUILIBRIUM WORLD PRICE AND
QUANTITY OF EXPORTS & IMPORTS
Price (per pound; U.S. dollars)
U.S. export
supply
$1.50
Canadian
export
supply
1.25
1.00
.88
.75
Equilibrium
U.S. import
demand
.50
.25
Canadian import
demand
25 50
100
Quantity of Aluminum
TRADE BARRIERS
Tariffs-excise taxes on imported goods
Revenue Tariff-provide Federal Government with revenue
(usually on products not produced domestically)
Protective Tariff-designed to shield domestic producers
Import Quota-sets a maximum amount that may be
imported
Nontariff Barrier (NTB)-licensing, safety, government
“red tape”
Voluntary Export Restriction (VER)
ECONOMIC IMPACT OF TARIFFS
Direct Effects
• Decline in Consumption
• Increased Domestic
Production
• Decline in Imports
• Tariff Revenue
Indirect Effects
•Promote inefficiencies
•Decrease Aggregate demand
ECONOMIC IMPACT OF TARIFFS
Economic Impact of Quotas
 Revenue transferred to foreign producers
Net Costs of Tariffs and Quotas
 Price goes up to consumers
Impact On Income Distribution
 Burden disproportionately hits low
incomes
THE CASE FOR PROTECTION
Military Self-Sufficiency
Increase Domestic Employment
•Job Creation From Imports
•Fallacy of Composition
•Retaliation
•Smoot-Hawley Act of 1930
•Long-run feedbacks
Diversification-For-Stability
Infant-Industry Argument
Strategic Trade Policy
Protection-Against-Dumping
Cheap Foreign Labor
THE WORLD TRADE ORGANIZATION
World Trade Organization (WTO)
•Reductions in Tariffs Worldwide
• New Rules to Promote Trade in Services
•Reduction in Agricultural Subsidies
•Intellectual Property Protections
•Phasing Out Textile Quotas and Tariffs
THE WORLD TRADE ORGANIZATION
World Trade Organization (WTO)
•Reductions in Tariffs
Worldwide
•New Rules to Promote Trade in
Services
•Reduction in Agricultural
Subsidies
•Intellectual Property
Protections
•Phasing Out Textile Quotas and
Tariffs
Chapter
Conclusions
labor-intensive goods
land-intensive goods
capital-intensive goods
cost ratio
principle of comparative
advantage
terms of trade
trading possibilities line
gains from trade
world price
domestic price
Copyright McGraw-Hill/Irwin 2002
export supply curve
import demand curve
equilibrium world price
tariffs
revenue tariff
protective tariff
import quota
nontariff barrier (NTB)
voluntary export restriction
(VER)
strategic trade policy
dumping
World Trade Organization
(WTO)
BACK
END
EXCHANGE RATES
THE BALANCE OF PAYMENTS,
AND TRADE DEFICITS
Chapter 38
Coming soon...