Copyright 2008 The McGraw-Hill Companies23-1
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
23
InternationalTrade
Copyright 2008 The McGraw-Hill Companies23-2
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Chapter Objectives• 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
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 oilLO1 23-3
Copyright 2008 The McGraw-Hill Companies23-4
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Some Key Facts• 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
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
Copyright 2008 The McGraw-Hill Companies23-7
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Some Key Facts
GLOBAL PERSPECTIVE
GermanyUnited States
ChinaJapan
FranceNetherlands
ItalyUnited Kingdom
0 2 4 6 8 10 12
10.0
8.9
6.5
6.2
4.9
3.9
3.8
3.8
Source: World Trade Organization
Shares of World Exports, Selected Nations
Percentage Share of World Exports, 2004
Economic Basis for Trade
• Nations have different resource endowments
• Labor-intensive goods
• Land-intensive goods
• Capital-intensive goods
LO2 23-9
• 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 CoffeeLO2
Comparative Advantage
23-10
Copyright 2008 The McGraw-Hill Companies23-11
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
The Economic Basis for Trade
Co
ffe
e (T
on
s)
30
25
20
15
10
5
0
35
40
45
5 10 15 20 25 30
Wheat (Tons)C
off
ee
(To
ns)
30
25
20
15
10
5
0
35
40
45
5 10 15 20
Wheat (Tons)
(a) United States (b) Brazil
12
18 8
4
A
B
Copyright 2008 The McGraw-Hill Companies23-12
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
The Economic Basis for Trade• 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
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
Copyright 2008 The McGraw-Hill Companies23-14
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
The Economic Basis for Trade
Co
ffe
e (T
on
s)
30
25
20
15
10
5
0
35
40
45
5 10 15 20 25 30
Wheat (Tons)C
off
ee
(To
ns)
30
25
20
15
10
5
0
35
40
45
5 10 15 20
Wheat (Tons)
(a) United States (b) Brazil
12
18 8
4
A
B
A’
B’
C
C’
W
c
w w’
TradingPossibilities Line
TradingPossibilities Line
Copyright 2008 The McGraw-Hill Companies23-15
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
The Economic Basis for Trade• Trade with Increasing Costs
(curve would be concave, not linear)
• The Case for Free Trade
Copyright 2008 The McGraw-Hill Companies23-16
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Supply and Demand Analysis of Exports and Imports
• 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
Copyright 2008 The McGraw-Hill Companies23-17
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Supply and Demand Analysis of Exports and Imports
Pri
ce (
Per
Po
un
d;
U.S
. D
oll
ars
1.50
1.25
1.00
.75
.50
050 75 100 125 150
Quantity of Aluminum(Millions of Pounds)
1.50
1.25
1.00
.75
.50
050 100
Quantity of Aluminum(Millions of Pounds)
Pri
ce (
Per
Po
un
d;
U.S
. D
oll
ars
(a) U.S. Domestic Aluminum Market
(b) U.S. Export Supplyand Import Demand
Dd
Sd
U.S.ExportSupply
U.S.Import
Demand
a
b
c
x
y
Surplus = 50
Surplus = 100
Shortage = 50
Shortage = 100
U.S. Aluminum Market
Copyright 2008 The McGraw-Hill Companies23-18
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Supply and Demand Analysis of Exports and Imports
Pri
ce (
Per
Po
un
d;
U.S
. D
oll
ars
1.50
1.25
1.00
.75
.50
050 75 100 125 150
Quantity of Aluminum(Millions of Pounds)
1.50
1.25
1.00
.75
.50
050 100
Quantity of Aluminum(Millions of Pounds)
Pri
ce (
Per
Po
un
d;
U.S
. D
oll
ars
(a) Canada’s Domestic Aluminum Market
(b) Canada’s Export Supplyand Import Demand
Dd
Sd
CanadianExportSupply
CanadianImport
Demand
a
r
s
t
Surplus = 50
Surplus = 100
Shortage = 50
Canadian Aluminum Market
Copyright 2008 The McGraw-Hill Companies23-19
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Supply and Demand Analysis of Exports and Imports
1.00
.75
.88
050 100
Quantity of Aluminum(Millions of Pounds)
Pri
ce (
Per
Po
un
d;
U.S
. D
oll
ars
Equilibrium World Price andQuantity of Exports and Imports
CanadianExportSupply
CanadianImport Demand
e
World Market for Aluminum
U.S.ExportSupply
U.S.Import
Demand
Equilibrium
W23.2
Trade Barriers and Export Subsidies
• Tariffs
• Revenue tariff
• Protective tariff
• Import quota
• Nontariff barrier (NTB)
• Voluntary export restriction (VER)
• Export subsidy
LO4 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
Copyright 2008 The McGraw-Hill Companies23-23
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Trade Barriers
Quantity
Pri
ce
0
Dd
Sd
Pd
Q
Sd + Q
Pt
Pw
a b c d
Economic Effects of a Protective Tariff or an Import Quota
Copyright 2008 The McGraw-Hill Companies23-24
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Consider Tariff Impact
• 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”..
Copyright 2008 The McGraw-Hill Companies23-25
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
Trade Barriers• The Case for Protection: A Critical
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
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 Trade (GATT)
• World Trade Organization (WTO)
• European Union (EU)
• North American Free Trade Agreement (NAFTA)
LO5 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 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
LO5 23-29
European Union
• Initiated in 1958 as Common Market
• Abolished tariffs and import quotas between member nations
• Established common tariff with nations outside the EU
• Created Euro Zone with one currency
LO5 23-30
NAFTA
• Agreement between U.S., Canada, and Mexico
• Established a free trade zone between the countries
• Trade has increased in all countries
• Enhanced standard of living
LO5 23-31
Trade Adjustment and Offshoring
• Trade Adjustment Assistance Act
• Designed to help individuals hurt by international trade
• Offshoring of jobs
• Shifting of work previously done by American workers to workers abroad
LO5 23-32
Petition of the Candlemakers
• Petition of candlemakers asking for protection from natural light producers such as the sun
• Tongue-in-cheek argument supporting the idea of free trade
LO5 23-33
Copyright 2008 The McGraw-Hill Companies23-34
Some Key FactsThe Economic Basis for TradeSupply and Demand Analysis of Exports and ImportsTrade BarrierTrade Adjustment AssistanceLast Word
Key Terms
End Show
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
• 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
Top Related