macro l16 exports and imports

8/4/2019 Macro L16 Exports and Imports

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The Export/Import Sector

Chapter 8

Basis of International Trade

Specialization and Exchange U.S. Exports and Imports

World Trade Agreements & Free Trade Zones

Summing Up


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Basis for International Trade

Trade takes place when it is in the interest of both parties

See Page 168 Adam Smith Observation, 1776

Virtually all economists are free trade advocates

If one nation has a production advantage in one good and

another has a production advantage in a second good, the twoshould work out a trade agreement


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Specialization & Exchange

Specialization increases the potential for maximum production

Productivity

Cost of Production Lowered

Total Production Increased

Every modern economy specializes

Nations will export the goods & services they can produce

efficiently (cheaper than other nations) and import the goods &services that other nations produce more efficiently


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U.S Exports and Imports

Historically, U.S. has had advantages in agricultureand related technology (Farm Equipment, Seed, Etc)

Also, in recent years, U.S. has been a leadingexporter of computer software and

Entertainment goods and services

The U.S. used to be a major exporter of steel and

textiles, but today other countries have advantagesin these products and U.S. has become a majorimporter

Following WWII, U.S. exported petroleum


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Trade Balances

Positive Trade Balance When a nation exports more$ value than it imports: $Exports > $Imports

Negative Trade Balance When a nation importsmore $ value than it exports: $Exports < $Imports

Prior to 1970, U.S. enjoyed a Positive Trade Balance

Since 1970, Trade Balance has become negative in amajor way


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8-4Copyright2002 by The McGraw-Hill Companies, Inc. All rights reserved.

1990 1992 1994 1996 1998 2000

Imports

Exports

Merchandise Imports and Exports as

Percentage of Goods Produced in the

United States, 1990-2000Since 1990 our imports and

exports as a percentage of

goods produced in the UnitedStates has grown steadily.

More than one-quarter of all

the goods produced here are

shipped abroad, while our

imports are equal to about

one-third of the goods we

produce in the United States


7/198-6Copyright2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Overallbalanceon goodsand serv ices

Balanceon goods

1970 1975 1980 1985 1990 1995 2000

Balance

on serv ices

U.S. Balance of Trade in Goods, Services, and

Overall Balance, 1970-2000 (in billions of dollars)

Since the late 1980s, we

have been running a

large and growingbalance on services.

Our balance on goods,

which has been negative

since the mid-1970s, hasgrown steadily worse

since 1991 and now

totals more than $300

billion


8/198-9

Percentage of GDP

0 10 20 30 40 50 60 70

Netherlands

Canada

Sweden

Switzerland

Denmark

Germany

France

United Kingdom

Italy

U.S.

60.6

43.7

43.7

41.2

36.8

29.5

26.1

25.8

25.5

10.7

Exports of Goods & Services as Percent-

age of GDP, Selected Countries, 1999

Copyright2002 by The McGraw-Hill Companies, Inc. All rights reserved.


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100 200 300 400 500 600 700

United States

Germany 520

Japan 388

China 214

South Korea 133

Mexico 118

Canada 358

Taiwan 110

Singapore 110

Switzerland 79

(billions of dollars)

683

8-10Copyright2002 by The McGraw-Hill Companies, Inc. All rights reserved.

The Worlds Top Ten Exporting

Nations, 1999


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World Trade Agreements & Free Trade

Zones

Examples of Free Trade Agreements

General Agreement on Trade and Tariffs (GATT) [1947]

World Trade Organization [1995]

European Union [1992]

North American Free Trade Agreement [1993]

Central American Free Trade Agreement [Pending?]


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World Trade Agreements and Free Trade

Zones Examples of Free Trade Zones Geographical areas

where trade barriers have been eliminated or greatlyreduced

NAFTA Canada, U.S. and Mexico

200,000 U.S. mfg jobs to Mexico

Modestly depressing impact on U.S. factory wages

Increased trade deficits with both Canada and Mexico

Mexico has become a manufacturing base 60% of U.S.exports to Mexico are upgraded and returned to the U.S.

Canada is our largest, single trading partner

Existing tariffs are scheduled to be phased out over time


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World Trade Organizations & Free Trade

Zones European UnionAlthough discussed since 1950s,

really formed in 1992

Fifteen Nations

Removed all checkpoints, delays and paperwork (customs)

Quality restrictions on certain products removed

No restriction on worker employment within the EU(immigration)

Creation of European Monetary Union (Euro as commoncurrency)

Trade within the EU could expand 3X


13/198-15

Ireland

Belgium

Sweden

United Kingdom

Denmark

Netherlands

The European Union (EU)

Finland

Germany

Luxembourg

Austria

Greece

Italy

France

Portugal

Spain

Indicates the 15 countries thatform the European Union (EU)



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World Trade Agreements and Free TradeZones

General Agreement on Trade and Tariffs (GATT) [1947]

Ultimately signed by 146 nations

Uniform system of rules for conduct of international trade Advantages for the U.S.

Foreign nations generally impose more trade restrictions than the U.S.

Intellectual property rights addressed such as patents, copyrights,trademarks

Open markets for business services such as advertising, accounting,computer services, and engineering where U.S. excels

Agriculture supposed to come under international trade rules


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World Trade Agreements and Free TradeZones

World Trade Organization [1995] as a successor toGATT

Liberalization of Trade

Nondiscrimination Most favored nation status defined

Members must offer all other members granted status the

same trade concessions No unfair encouragement of exports

Reductions of subsidies that encourage exports

Been a major point of contention among all nations


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Globalization: Arguments Against

Upsets the status quo

Workers in poorer countries exploited to providecheaper goods for U.S.

Most nations have a difficult time ceding theirnational sovereignty to an international organization


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A Summing Up: C + I + G+ Xn

8-7

Net exports = Xn

Xn = Exports - Imports



19/198-8Copyright 2002 by The McGraw Hill Companies Inc All rights reserved

45

8,000

10,000

8,000 10,000

6,000

6,000

4,000

4,0002,000

2,000

C + I + G

Disposable income ($)

45

8,000

10,000

8,000 10,000

6,000

6,000

4,000

4,0002,000

2,000

C + I + G

Disposable income ($)

C + I + G + Xn

C + I + G + Xn

Why is the C + I + G + Xn line lower than the C + I + G line?

Answer: It is lower because net exports (Xn) are negative

macro l16 exports and imports

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