Download Micro Ch 23 - 19e - use this one

Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
23
International
Trade
End Show
23-1
Copyright 2008 The McGraw-Hill Companies
Chapter Objectives
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
End Show
23-2
• The Graphical Model of Comparative
Advantage, Specialization, and the
Gains From Trade
• How Differences Between World Prices
and Domestic Prices Prompt Exports
and Imports
• How Economists Analyze the Economic
Effects of Tariffs and Quotas
• The Rebuttals to the Most Frequently
Presented Arguments for Protectionism
• About the Assistance Provided Workers
Under the Trade Adjustment Act of 2002
• How the Offshoring of U.S. Jobs Relates
to the Growing International Trade in
Services
Copyright 2008 The McGraw-Hill Companies
Some Key Trade Facts
• U.S. trade deficit in goods
• $517 billion in 2009
• U.S. trade surplus in services
• $138 billion in 2009
• Canada largest U.S. trade partner
• Trade deficit with China
• $220 billion in 2009
• Exports are 13% U.S. output
• Dependence on oil
LO1
23-3
Some Key Facts
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
• U.S. Sizable Trade Deficit with
China
• U.S. Dependence on Oil is
Reflected
• U.S. has World’s Highest Trading
Volume (Exports and Imports)
• China a Major Trade Force
• International Trade Links World
Economies
• International Trade is the Center
of Policy Debates
End Show
23-4
Copyright 2008 The McGraw-Hill Companies
Some Key Trade Facts
• Principal U.S. exports include:
• Chemicals
• Agricultural products
• Consumer durables
• Semiconductors
• Aircraft
• U.S. provides about 8.5% of world’s
exports
LO1
23-5
Some Key Trade Facts
LO1
23-6
Some Key Facts
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
Shares of World Exports,
Selected Nations
GLOBAL PERSPECTIVE
Percentage Share of World Exports, 2004
0
Germany
United States
China
Japan
France
Netherlands
Italy
United Kingdom
2
4
6
8
10
10.0
8.9
6.5
6.2
4.9
3.9
3.8
3.8
End Show
Source: World Trade Organization
23-7
Copyright 2008 The McGraw-Hill Companies
12
Some Key Trade Facts
LO1
23-8
Economic Basis for Trade
• Nations have different resource
•
•
•
LO2
endowments
Labor-intensive goods
Land-intensive goods
Capital-intensive goods
23-9
Comparative Advantage
• Assumptions
• Two nations
• Same size labor force
• Constant costs in each country
• Different costs between countries
• U.S. absolute advantage in both
• Opportunity cost ratio
• Slope of the curve
• Wheat sacrificed per ton of Coffee
LO2
23-10
The Economic Basis for Trade
(a) United States
45
40
40
35
35
30
30
Coffee (Tons)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Coffee (Tons)
45
25
20
12
10
A
5
4
Key Terms
5
10
15 18 20
Wheat (Tons)
23-11
20
10
5
End Show
25
15
15
0
(b) Brazil
Copyright 2008 The McGraw-Hill Companies
25
30
0
B
5
8 10
15
Wheat (Tons)
20
The Economic Basis for Trade
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• Self-Sufficiency Output Mix
• Specializing Based on
Comparative Advantage
– Principle of Comparative
Advantage
• Terms of Trade
– 1W ≡ 1C in the U.S.
– 1W ≡ 2C in Brazil
• Gains from Trade
• Trading Possibility Line
– Improved Options
– Added Output
Key Terms
End Show
23-12
Copyright 2008 The McGraw-Hill Companies
W23.1
Comparative Advantage
• Gains from trade
• Trading possibilities line
• Slope equals terms of trade
• Improved options
• Complete specialization
• More of both goods
• More efficient resource allocation
LO2
23-13
The Economic Basis for Trade
(a) United States
45
C’
40
40
35
C
25
20
A’
15
12
10
A
20
c
B’
5
4
W
5
10
15 18 20
Wheat (Tons)
23-14
Trading
Possibilities Line
25
10
Key Terms
End Show
30
15
5
0
35
Trading
Possibilities Line
Coffee (Tons)
30
Coffee (Tons)
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
(b) Brazil
45
Copyright 2008 The McGraw-Hill Companies
25
30
0
B
5
w w’
8 10
15
Wheat (Tons)
20
The Economic Basis for Trade
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• Trade with
Increasing Costs
(curve would be concave,
not linear)
• The Case for Free
Trade
Key Terms
End Show
23-15
Copyright 2008 The McGraw-Hill Companies
Supply and Demand Analysis
of Exports and Imports
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
• World Price
• Domestic Price
• Supply and Demand in
the United States
–U.S. Export Supply
• Export Supply Curve
–U.S. Import Demand
• Import Demand Curve
End Show
23-16
Copyright 2008 The McGraw-Hill Companies
Supply and Demand Analysis
of Exports and Imports
U.S. Aluminum Market
(a) U.S. Domestic
Aluminum Market
Sd
1.50
1.50
Surplus = 50
1.00
1.00
.75
Shortage = 50
.50
50
75
100
125
Quantity of Aluminum
(Millions of Pounds)
23-17
Copyright 2008 The McGraw-Hill Companies
b
U.S.
Export
Supply
a
U.S.
Import
Demand
.75
x
.50
y
Dd
0
End Show
c
1.25
1.25
Shortage = 100
Key Terms
(b) U.S. Export Supply
and Import Demand
Price (Per Pound; U.S. Dollars
Surplus = 100
Price (Per Pound; U.S. Dollars
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
150
0
50
100
Quantity of Aluminum
(Millions of Pounds)
Supply and Demand Analysis
of Exports and Imports
Canadian Aluminum Market
(a) Canada’s Domestic
Aluminum Market
1.50
1.50
Surplus = 100
Sd
1.25
1.25
Surplus = 50
.75
.50
0
50
75
100
Dd
125
Quantity of Aluminum
(Millions of Pounds)
End Show
23-18
s
1.00
1.00
Shortage = 50
Key Terms
(b) Canada’s Export Supply
and Import Demand
Price (Per Pound; U.S. Dollars
Price (Per Pound; U.S. Dollars
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Copyright 2008 The McGraw-Hill Companies
150
.75
r
Canadian
Export
Supply
a
Canadian
Import
Demand
.50
t
0
50
100
Quantity of Aluminum
(Millions of Pounds)
Equilibrium World Price and
Quantity of Exports and Imports
Price (Per Pound; U.S. Dollars
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Supply and Demand Analysis
of Exports and Imports
World Market for Aluminum
U.S.
Export
Supply
1.00
.88
Canadian
Export
Supply
e
Equilibrium
U.S.
Import
Demand
.75
Canadian
Import Demand
0
Key Terms
50
100
Quantity of Aluminum
(Millions of Pounds)
End Show
23-19
Copyright 2008 The McGraw-Hill Companies
W23.2
Trade Barriers and Export Subsidies
• Tariffs
• Revenue tariff
• Protective tariff
• Import quota
• Nontariff barrier (NTB)
• Voluntary export restriction
•
LO4
(VER)
Export subsidy
23-20
Economic Impact of Tariffs
• Direct effects
• Decline in consumption
• Increase in domestic production
• Decline in imports
• Tariff revenue
• Indirect effects
LO4
23-21
Economic Impact of Quotas
• Decline in consumption
• Increase in domestic production
• Decline in imports
• Quotas do not provide for any
government revenue but instead
transfer it to foreign producers
LO4
23-22
Trade Barriers
Sd
Sd + Q
Price
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Economic Effects of a Protective
Tariff or an Import Quota
Pd
Pt
Pw
Dd
Key Terms
0
End Show
a
b
Q
c d
Quantity
23-23
Copyright 2008 The McGraw-Hill Companies
Consider Tariff Impact
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
• Example of tariff gone awry:
Water Intensive California Rice
(shortage of water and uncertain
future of meeting water needs).
“The U.S. government supports
domestic rice production through tariffs
on imported rice and direct taxpayer
subsidies based on production, prices,
and historical acreage”..
Key Terms
End Show
23-24
Copyright 2008 The McGraw-Hill Companies
Trade
Barriers
• The Case for Protection: A Critical
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
Review
– Military Self-Sufficiency Argument
– Diversification-for-Stability
Argument
– Infant Industry Argument
• Counterarguments
• Strategic Trade Policy
– Protection-Against-Dumping
Argument
• Dumping
– Increased Domestic Employment
Argument
• Smoot-Hawley Tariff Act
– Cheap Foreign Labor Argument
End Show
23-25
Copyright 2008 The McGraw-Hill Companies
Economic Impact of Quotas
• Decline in consumption
• Increase in domestic production
• Decline in imports
• Quotas do not provide for any
government revenue but instead
transfer it to foreign producers
LO4
23-26
Multilateral Trade Agreements
• General Agreement on Tariffs and
•
•
•
LO5
Trade (GATT)
World Trade Organization (WTO)
European Union (EU)
North American Free Trade
Agreement (NAFTA)
23-27
GATT
• Three principles:
• Equal, nondiscriminatory trade
between member nations
• Reduction in tariffs
• Elimination of import quotas
LO5
23-28
WTO
• Established by Uruguay Round of
•
•
•
LO5
GATT
153 member nations in 2010
Oversees trade agreements and rules
on disputes
Critics argue that it may allow nations
to circumvent environmental and
worker-protection laws
23-29
European Union
• Initiated in 1958 as Common Market
• Abolished tariffs and import quotas
•
•
LO5
between member nations
Established common tariff with
nations outside the EU
Created Euro Zone with one currency
23-30
NAFTA
• Agreement between U.S., Canada,
•
•
•
LO5
and Mexico
Established a free trade zone
between the countries
Trade has increased in all countries
Enhanced standard of living
23-31
Trade Adjustment and Offshoring
• Trade Adjustment Assistance Act
• Designed to help individuals hurt by
•
LO5
international trade
Offshoring of jobs
• Shifting of work previously done by
American workers to workers
abroad
23-32
Petition of the Candlemakers
• Petition of candlemakers asking for
•
LO5
protection from natural light producers
such as the sun
Tongue-in-cheek argument
supporting the idea of free trade
23-33
Key Terms
Some Key
Facts
The
Economic
Basis for
Trade
Supply and
Demand
Analysis of
Exports and
Imports
Trade Barrier
Trade
Adjustment
Assistance
Last Word
Key Terms
•
•
•
•
•
•
•
•
•
•
•
•
•
•
labor-intensive goods
land-intensive goods
capital-intensive goods
opportunity-cost ratio
principle of comparative
advantage
terms of trade
trading possibilities line
gains from trade
world price
domestic price
export supply curve
import demand curve
equilibrium world price
tariffs
End Show
23-34
Copyright 2008 The McGraw-Hill Companies
•
•
•
•
•
•
•
•
•
•
•
•
revenue tariff
protective tariff
import quota
nontariff barrier (NTB)
voluntary export
restriction (VER)
strategic trade policy
dumping
Smoot-Hawley Tariff Act
Trade Adjustment
Assistance Act
offshoring
World Trade
Organization (WTO
Doha Round