the united states in the global economy chapter 5 mcgraw-hill/irwin copyright © 2009 by the...
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![Page 1: The United States in the Global Economy Chapter 5 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved](https://reader035.vdocuments.us/reader035/viewer/2022062714/56649d6a5503460f94a493aa/html5/thumbnails/1.jpg)
The United States in the Global Economy
Chapter 5
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter Objectives
• U.S. international trade• Comparative advantage,
specialization, international trade• Exchange rates• Government intervention with free
international trade
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International Linkages
UnitedStates
Economy
OtherNational
Economies
Goods & Services
Capital & Labor
Information & Technology
Money
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World Trade
• Trade deficit–Imports exceed exports
–Borrow from foreigners
–Sell real assets to foreigners
• Trade surplus–Exports exceed imports
–Lend to foreigners
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Rapid Trade Growth
• Transportation technology
• Communications technology
• General decline in tariffs
• All nations participate
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Exports of Goods and Services(as a % of GDP)
BelgiumNetherlandsGermanySouth KoreaCanadaItalyFranceNew ZealandSpainUnited KingdomJapanUnited States
Source: IMF, International Financial Statistics, 2007
12%
91%75%47%45%35%29%27%27%26%25%18%
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United States Trade
0
2
4
6
8
10
12
14
16
18
1975 1980 1985 1990 1995 2000 2005
Percentage of GDP, adjusted for inflation,billions of 2000 dollars
Source: Bureau of Economic Analysis
Per
cen
tag
e o
f G
DP
Imports
Exports
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U.S. Imports and Exports
Goods by area – 2007
CanadaEuropean UnionMexicoChinaJapanOPEC countriesAll otherTOTAL
CanadaEuropean UnionMexicoChinaJapanOPEC countriesAll otherTOTAL
Exports to Imports from
Source: Survey of Current Business, April 2006
Value Value
$250 242 136 65 61 49 346$1149
$317 356 214 322 146 174 436$1965
Imports Exceed Exports by $816 Billion
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Specialization
• Shift resources to export industry
• Achieve higher overall output and income
• Absolute advantage–Higher output per worker for a good
• Comparative advantage*–Lower domestic opportunity cost
for a good
*basis for trade
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Production Possibilities and Trade
Normal Shape Simplified Shape (increasing opp. Cost) (constant opp. Cost)
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CanadaWheat 0 25 50 75 100
Grape-
Fruit
20 15 10 5 0
US
Wheat 0 20 40 60 80
Grape-
fruit
40 30 20 10 0
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Canada: -25W:5G=5W:1GWheat 0 25 50 75 100
Grape-
Fruit
20 15 10 5 0
US: -20 W: 10 G= 2W: 1G
Wheat 0 20 40 60 80
Grape-
fruit
40 30 20 10 0
or: 5W: 2.5 G
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Wheat WheatCanada USA
Grapefruit Grapefruit
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Homework #4 Page 110
A BB C D E F
Apparel 30 2424 18 12 6 0
Chem 0 66 12 18 24 30
R S T UU V W
Apparel 10 8 6 44 2 0
Chem. 0 4 8 1212 16 20
Apparel
Chem.
CHINA
U.S.
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Homework #4 Page 110
A BB C D E F
Apparel 30 2424 18 12 6 0
Chem 0 66 12 18 24 30
R S T UU V W
Apparel 10 8 6 44 2 0
Chem. 0 4 8 1212 16 20
Apparel 28= B+U
Chem. 18= B+U
CHINA
U.S.
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Trade Barriers
• Protective tariffs
• Import quotas
• Nontariff barriers
• Export subsidies
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Reasons for Trade Barriers
• Misunderstanding gains from trade
• Political considerations
• Costs to society
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Government and Trade
• Trade Wars• Long history of U.S. tariffs
–Smoot-Hawley Tariff Act of 1930
• Reciprocal Trade Agreements Act of 1934–Reduce tariffs–Negotiating Authority–Most-Favored-Nation Clause
(Normal Trade Relations Status-NTR)5-34
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Multilateral Trade Agreements
• General Agreement on Tariffs and Trade (GATT)–Equal trade treatment
–Reduction in tariffs
–Elimination of import quotas
• Uruguay Round 19952005
(reduce tariffs by 33%)
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Multilateral Trade Agreements
• World Trade Organization (WTO) (Uruguay round)
–Successor to GATT–151 nations belong
• Doha Round (Doha, Qatar)–Trade negotiation–Latest round 2001
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Free Trade Zones
• European Union (EU)–Established 1958–The euro zone
• North American Free Trade Agreement (NAFTA)–Established 1993–Canada, Mexico, and U.S.
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Trade-Related Issues
• Trade adjustment assistance• Offshoring of jobs
–Outsourcing–Benefits and costs
• Fair-trade products–The purpose
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