International Trade

Prof. McPherson Economics 4850/5850

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Trade: An Introduction

Chapter 1

2

Int’l Boundaries and National Sovereignty Give Rise to Trade

• Exchange Rates Differ • Commercial Policies Differ • Domestic Economic Policies Differ • The Extent of Markets Differs

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What is International Trade?

• International Trade is the study of the economic transactions between countries, and the impediments to those transactions.

• We will be concerned with “real” issues, and not so much capital flows, balance of payments issues, ex. rates, etc.

4

The Fundamental Questions of International Trade

• Who gains and who loses from trade? • What determines the pattern of trade? • What are the barriers to trade?

5

Growth and Composition of Trade

• The volume and value of world exports have grown tremendously

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Growth in World Production and Trade, 1963-2010 (average annual percentage change in volume)

1963-73 1970-79 1985-90 1995-2000 2005-10 Production All commodities 6.0% 4.0% 3.0% 4.0% 2.0% Agriculture 2.5 2.0 1.9 2.5 2.0 Mining 5.5 2.5 3.0 2.0 0.5 Manufacturing 7.5 4.5 3.2 4.0 2.5 Exports All commodities 9.0% 5.0% 5.8% 7.0% 3.5% Agriculture 14.0 4.5 2.2 3.5 3.5 Mining 7.5 1.5 4.8 4.0 1.5 Manufacturing 11.5 7.0 7.0 8.0 4.0

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Growth and Composition of Trade

• The volume and value of world exports have grown tremendously

• Of merchandise trade, manufacturing makes up about 75%, with the difference split between agriculture and mining

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Composition of World Merchandise Exports ($, billions), 2010 and 1980

Product Category Value in

2010 Share in

2010 Share in

1980 Agricultural Products $1,362 9.2% 14.7% Mining Products $3,026 20.4% 27.7% Manufactures $9,962 67.1% 53.9%

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Growth and Composition of Trade

• The volume and value of world exports have grown tremendously

• Of merchandise trade, manufacturing makes up about 75%, with the difference split between agriculture and mining

• Trade in services is also growing in importance

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Geographical Composition of Trade

• Industrialized countries dominate global exporting and importing (although that share is declining)

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Merchandise Exports and Imports by Region, 2011 (billions of dollars) Value of Exports Share Value of Imports Share North America $2,283 12.8% 3,090 17.2% South and Central America 749 4.2 727 4.0 Europe 6,601 37.1 6,854 38.1 Commonwealth of Indep. States 788 4.4 540 3.0 Africa 597 3.4 555 3.1 Middle East 1,228 6.9 665 3.7 Asia 5,534 31.1 5,568 30.9 World $17,779 100.0% $18,000 100.0%

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Geographical Composition of Trade

• Industrialized countries dominate global exporting and importing (although that share is declining)

• The EU is the most important origin and destination of traded goods

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Merchandise Exports and Imports by Region, 2011 (billions of dollars) Value of Exports Share Value of Imports Share North America $2,283 12.8% 3,090 17.2% South and Central America 749 4.2 727 4.0 Europe 6,601 37.1 6,854 38.1 Commonwealth of Indep. States 788 4.4 540 3.0 Africa 597 3.4 555 3.1 Middle East 1,228 6.9 665 3.7 Asia 5,534 31.1 5,568 30.9 World $17,779 100.0% $18,000 100.0%

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Geographical Composition of Trade

• Industrialized countries dominate global exporting and importing (although that share is declining)

• The EU is the most important origin and destination of traded goods

• The economically powerful regions tend to export to themselves

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Regional Structure of Exports, 2010

North America

South and Central America

Europe CIS

Africa Middle East

Asia

N. America 48.7% 8.4% 16.8% 0.6% 1.7% 2.7% 21.0% So. And C. America 23.9% 25.6% 18.7% 1.3% 2.6% 2.6% 23.2% Europe 7.4% 1.7% 71.0% 3.2% 3.1% 3.0% 9.3% CIS 5.6% 1.1% 52.4% 18.6% 1.5% 3.3% 14.9% Africa 16.8% 2.7% 36.2% 0.4% 12.3% 3.7% 24.1% Middle East 8.8% 0.8% 12.1% 0.5% 3.2% 10.0% 52.6% Asia 17.1% 3.2% 17.2% 1.8% 2.7% 4.2% 52.6%

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Geographical Composition of Trade

• Industrialized countries dominate global exporting and importing (although that share is declining)

• The EU is the most important origin and destination of traded goods

• The economically powerful regions tend to export to themselves

• The big players are the Germany, U.S., Japan, China, U.K., and France

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Top 10 Merchandise Exporters, 2011 Value Percentage Country $, billions Share China $1,889 10.4% United States 1,481 8.1 Germany 1,474 8.1 Japan 823 4.5 Netherlands 660 3.6 France 597 3.3 Korea 555 3.0 Italy 523 2.9 Russian Federation 522 2.9 Belgium 476 2.6

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Top 10 Merchandise Importers, 2011 Value Percentage Country $, billions Share United States $2,265 12.3% China 1,743 9.5 Germany 1,254 6.8 Japan 854 4.6 France 715 3.9 United Kingdom 636 3.5 Netherlands 597 3.2 Italy 557 3.0 Korea 524 2.9 Hong Kong (China) 511 2.8

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Trade and the U.S.

• The U.S. is an economic giant among nations • The U.S. is a relatively “closed” economy

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International Interdependence for Selected Countries and Groups of Countries, 1970 – 2010 (exports as a % of GDP)

1970 2010 Industrialized Countries: Australia 14% 20% Belgium 52% 80% Canada 23% 29% France 16% 25% Germany NA 47% Italy 16% 27% Japan 11% 15% Netherlands 42% 78% United Kingdom 23% 30% United States 6% 13% Developing Countries: Argentina 9% 22% Chile 15% 39% China 3% 30% Czech Republic NA 79% India 4% 22% Kenya 30% 26% Mexico 6% 30% Nigeria 8% 39%

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Geographical Composition of U.S. Trade: Destination of U.S. Exports

• NAFTA countries are the biggest recipients of our exports; that share has increased over time.

• Europe, Japan, and NICs are very important recipients of our exports, but their share has decreased recently.

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U.S. Merchandise Trade by Area and Country, 2011 (millions of dollars and %)

Exports to Imports From value share value share Region or Country European Union $273,280 18.3% $373,216 16.7% Europe, non-EU 62,307 4.2% 80,387 3.6% Canada 282,253 18.8% 321,955 14.4% Mexico 197,777 13.2% 267,572 12.0% Latin America (not Mexico)

169,639 11.3% 174,556 7.8%

China 105,180 7.0% 400,529 17.9% Japan 67,654 4.5% 131,666 5.9% Other Asia 246,069 16.4% 285,756 12.8% Middle East 59,497 4.0% 106,699 4.8% Africa 33,733 2.3% 93,345 4.2% Total 1,497,389 100.0% 2,235,681 100.0%

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Geographical Composition of U.S. Trade: Sources of U.S. Imports

• NAFTA countries are the source of our imports; that share has increased over time.

• Western Europe, Japan, and NICs are very important sources of our imports, but their share has decreased recently.

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U.S. Merchandise Trade by Area and Country, 2011 (millions of dollars and %)

Exports to Imports From value share value share Region or Country European Union $273,280 18.3% $373,216 16.7% Europe, non-EU 62,307 4.2% 80,387 3.6% Canada 282,253 18.8% 321,955 14.4% Mexico 197,777 13.2% 267,572 12.0% Latin America (not Mexico)

169,639 11.3% 174,556 7.8%

China 105,180 7.0% 400,529 17.9% Japan 67,654 4.5% 131,666 5.9% Other Asia 246,069 16.4% 285,756 12.8% Middle East 59,497 4.0% 106,699 4.8% Africa 33,733 2.3% 93,345 4.2% Total 1,497,389 100.0% 2,235,681 100.0%

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Commodity Composition of U.S. Merchandise Exports

• The U.S. tends to export capital goods and industrial supplies

• Capital goods and automotive exports have become more important over time.

• Agricultural products have diminished in importance

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Commodity Composition of U.S. Trade, 2011 (billions of dollars and %)

Exports to Imports From value share value share Foods, feeds, beverages $126.1 8.4% $108.2 4.8% Industrial supplies/materials 517.7 34.6% 783.8 35.0% Capital goods (non-auto) 491.4 32.8% 513.3 23.0% Automotive 132.5 8.8% 255.0 11.4% Consumer goods 176.3 11.8% 516.8 23.1% Other goods 53.3 3.6% 59.3 2.7% Total 1,497.4 100.0% 2,235.7 100.0%

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Commodity Composition of U.S. Merchandise Imports

• The U.S. tends to import consumer goods and capital goods.

• Capital goods and consumer goods have taken up a larger share of imports over time.

• Petroleum products have diminished as a share of imports since the 1980s; this will not likely continue to be the case.

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Commodity Composition of U.S. Trade, 2011 (billions of dollars and %)

Exports to Imports From value share value share Foods, feeds, beverages $126.1 8.4% $108.2 4.8% Industrial supplies/materials 517.7 34.6% 783.8 35.0% Capital goods (non-auto) 491.4 32.8% 513.3 23.0% Automotive 132.5 8.8% 255.0 11.4% Consumer goods 176.3 11.8% 516.8 23.1% Other goods 53.3 3.6% 59.3 2.7% Total 1,497.4 100.0% 2,235.7 100.0%

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Trade in Services

• Over $4 trillion annually (2010) • About 20% of total trade (closer to 30% for

U.S.)

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U.S. Exports of services as percentage of total exports

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Year

Per

cent

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Trade in Services

• Over $4 trillion annually (2007) • About 20% of total trade • Most exporters and importers of services are

industrial countries

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Leading Exporters of Commercial Services Rank 2010 Value Percentage 1970 2010 ($, billions) Share 1 1 $578 13.9% United States 2 2 274 6.6 U.K. 4 3 253 6.1 Germany NA 4 182 4.4 China 3 5 161 3.9 France NA 6 148 3.9 India 6 7 143 3.4 Japan 8 8 141 3.4 Spain NA 9 128 3.1 Netherlands NA 10 125 3.0 Singapore

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Leading Importers of Commercial Services ............... Rank 2010 Value Percentage 1970 2010 ($, billions) Share 1 1 $391 10.1% United States 2 2 284 7.3 Germany NA 3 236 6.1 China 3 4 171 4.4 United Kingdom 5 5 165 4.3 Japan 4 6 141 3.6 France NA 7 130 3.4 India 8 8 118 3.1 Netherlands 6 9 115 3.0 Italy NA 10 113 2.9 Ireland

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International Trade Regional Impact

• Different regions in the country can be impacted differently from trade

• This has the potential of causing income effects in the different regions – as well as other problems

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