Slide 1

Slide 2 The world is becoming a smaller place. What happens in Tokyo affects what happens in New York and Dallas, Texas. over $12 trillion in world trade There is over $12 trillion in world trade. Volume of Trade Exports as % of GDP Belgium91% Netherlands75% Germany47% S. Korea45% China35% [1/3 bought by U.S.] Canada35% [If we sneeze, Canada catches a cold] Italy29% France 27% New Zealand27% Spain26% United Kingdom26% France26% Mexico25% [80% of Mexicos exports are sold to U.S.] Japan18% United States13% [$1.8 trillion of a $14.8 trillion economy in 2010] World25% The importance of exports has grown. 13 % 2010 Slide 3 U.S. Imports U.S. Imports China$365 Canada$276 Mexico$230 Japan$120 Germany $83 U nited K ingdom $50 South Korea $49 France $39 Venezuela $32 Saudi Arabia $31 Italy $28 U.S. Exports U.S. Exports Canada $249 Mexico $163 China $92 Japan $61 U nited K ingdom $49 Germany $48 Netherlands $35 South Korea $39 Singapore $29 France $27 Brazil $35 Belgium $26 Slide 4 Revenue Tariffs not produced domestically 1. Revenue Tariffs applied to products not produced domestically [bananas, coffee]. These are normally low & their purpose is to provide income for the government. Protective Tariffs protect domestic 2. Protective Tariffs tax on imports designed to protect domestic producers from foreign competition producers from foreign competition [autos, shoes, textiles]. *We have tariffs on 8,753 products (70% of our imports). They add about [$1,000 per family] 3% to prices. They cost consumers an extra $70 billion. [$1,000 per family] 1 st Singapore 2 nd 4th 2.6 % 2.6% Sweden Switzerland 3 rd T he 2.6% is 4 rth lowest behind Singapore, Ireland, & Switzerland. Slide 5 Top 12 [Free Traders] - 2010 1-Switzerland 2-United States 3-Singapore 4-Sweden 5-Denmark 6-Finland 7-Germany 8-Japan 9-Canada 10-Netherlands 11-New Zealand 12-United Kingdom Global Competition Slide 6 Smoot-Hawley Tariff of1930 Smoot-Hawley Tariff of 1930 -so high it decreased imports 60% and hurt all international trade. International trade plummeted 62% from $60 billion in 1928 to $25 billion in 1938. Agricultural tariffs Tariffs on over 12,000 products went up. Agricultural tariffs clockswoolen went from 20% to 34%, clocks from 45% to 55%, woolen productswines, spirits, & beverages products from 50% to 60%, wines, spirits, & beverages from butter tariffs800 36% to 47%, corn and butter tariffs were doubled, over 800 production itemsDomestic prices fell by over production items were taxed. Domestic prices fell by over 25%overseas prices rose 60 % 25% while overseas prices rose 60 %. By 1933, world trade was about 1/3 of the 1929 level. All nations were losers. This Great Depression. policy put the Great in the Depression. Reed Smoot Willis Hawley The next day the stock market tanked and the economy was dead for 10 years. for 10 years. Unemployment went from 8% to 16% after it was introduced, then marched up to 25% by 1933. Slide 7 Willis Hawley and Reed Smoot May 5, 1930 1,028 Economists Ask Hoover To Veto Pending Tariff Bill Professors in 179 colleges and other leaders assail rise in tariffs as harmful to country and sure to bring reprisals. Slide 8 And Hoover replied: Slide 9 GATTGATT19471995 2. GATT[General Agreement on Tariffs & Trade] 19471995 23 nations128 nations - started with 23 nations and ended with 128 nations rules for world trade no mechanism to set the rules for world trade. GATT had no mechanism to enforce their rules40%4% enforce their rules. Tariffs fell from 40% to 4%. GATT these three principles 3. GATT was based on these three principles. Equal, nondiscriminatory treatment A. Equal, nondiscriminatory treatment for all member nations reduction of tariffs B. The reduction of tariffs elimination of import quotas C. The elimination of import quotas [Based on cooperation and Ill lower mine if you will lower yours. negotiation, or Ill lower mine if you will lower yours.] Reciprocal Trade Act1934 1. Reciprocal Trade Act 1934-Roosevelt said to other countries, If youll lower your tariffs, well reciprocate and lower ours by the same percent. ours by the same percent. [up to 50% of existing rates] There were 8 rounds of GATT. The 8 th established the WTO. [There were 8 rounds; here are the last 3. Slide 10 protected intellectual property GATT protected intellectual property (patents, 1995 trademarks, and copyrights). GATT in 1995 was WTO replaced by the World Trade Organization [WTO]. These agreements have already boosted the worlds $6 trillion [8%].153 nations GDP by $6 trillion [8%]. [*153 nations] consumers will gain $30 billion U.S. consumers will gain $30 billion annually. [*another 30 hold observer status waiting to become members] orangesS. Americamachine toolsSwitzerlanTVs We have trade restrictions on oranges from S. America, machine tools from Switzerland, TVs from S. Koreacomputer screens from Japansteel from S. Korea, computer screens from Japan, and steel from nearly everywhere on earth. There watchestobaccoshipsice creamcheeseclothing, sugar are also restrictions on watches, tobacco, ships, ice cream, cheese, clothing, sugar, & hundreds Sugar quotascost consumers $3 billion per year of other products. Sugar quotas for 12,000 sugar growers cost consumers $3 billion per year [cost twice the world price -22 cents per pound v. 10 cents per pound for the world price]. retaining just 1 job through trade restraints$1 million specialty The annual cost of retaining just 1 job through trade restraints is $1 million in specialty steel, $550,000 in nuts and screws$240,000 in orange juice$200,000 in glassware steel, $550,000 in nuts and screws, $240,000 in orange juice, and $200,000 in glassware. 1980sold 1 million fewer carsBig 3 lost over In 1980, U.S. auto companies sold 1 million fewer cars than in 1979. The Big 3 lost over $4 billion $4 billion. The Big 3 demanded protection so they could retool for smaller cars. Japan agreed to 1.65 million from 1981-19831.85 million in 1984 voluntarily freeze auto exports to 1.65 million from 1981-1983 & 1.85 million in 1984. With fewer car prices rose $2,000Japanese car prices rose $2,500 choices, domestic car prices rose $2,000 and Japanese car prices rose $2,500. We had a smaller selection, had to wait longer and paid $15.7 billion extra. WTO WTO Slide 11 One of these Honda motorcycles is a Chinese knockoff. One of these Honda motorcycles is a Chinese knockoff. *The fake one is on the right [selling for $300]. Global counterfeiting$600 billion China has Global counterfeiting cost companies $600 billion a year. China has 2/3 of all counterfeit products 2/3 of all counterfeit products. Some of the counterfeiting goods include: Lipitor tabletsH-P inkjet cartridges 16.5 million Lipitor tablets, $1 million worth of H-P inkjet cartridges, Viagra cigarettes $100 billsNokia phones phony Viagra; cigarettes, $100 bills, 11,000 fake parts for Nokia phones, Callaway Golf clubsIntel Computer chips shampoossoapsteas Callaway Golf clubs, Intel Computer chips, shampoos, soaps, teas, 10% medicines bogus car parts Sony PS2 s cars of medicines, bogus car parts, Sony PS2 s, & cars. Chinas policy seems to be: If you can make it, we can fake it. If you can make it, we can fake it. Counterfeiting cost U.S. companies $250 billion a year. Offenders face fines of up to $5 million & imprisonment of up to 20 years, and seizure of all fake products. Slide 12 Knock-off Slide 13 Slide 14 Slide 15 WTO Objectives : 300 disputes brokenpromises [They have settled over 300 disputes ( broken promises )] national treatment to imported goods 1. Accord national treatment to imported goods regulate Msame as domestic goods [regulate M the same as domestic goods] most favored nation status 2. Accord most favored nation status to member same tariffs and quotas nations [charge all the same tariffs and quotas] Eliminate tariffs and non tariff barriers 3. Eliminate tariffs and non tariff barriers. 4. A government must find the best goods internationally. WTO 148 Slide 16 Reductions in Tariffs Worldwide Reductions in Tariffs Worldwide New Rules to Promote Trade in Services New Rules to Promote Trade in Services Reduction in Agricultural Subsidies Reduction in Agricultural Subsidies Intellectual Property Protections Intellectual Property Protections Phasing Out Textile Quotas and Tariffs Phasing Out Textile Quotas and Tariffs Tariffs were totally eliminated in 2008 Tariffs were totally eliminated in 2008 WTO settled more disputes in 10 years than GATT did in 50 years. WTO settled more disputes in 10 years than GATT did in 50 years.WTO Slide 17 The Dispute: The Dispute: The EU restricted banana imports to bananas from only a few countries that were former colonies. As a result, the price paid for bananas in European markets was about twice the price of bananas in the U.S. The worlds largest banana companies, Dole, Chiquita, and Del Monte, headquartered in the U.S., complained that they were being harmed because their bananas, which came from other countries of Central and South America were excluded from the EU system, which favored a few former colonies. Ruling: The WTO ruled that the EU restrictions on banana imports were harmful and against the rules of trade to which all nations had agreed. This is but one example of the role of the WTO in promoting fair and free international trade. A man from India holds the record for eating bananas (91) in 30 min. Slide 18 SouthCentralNorth America 800 million 34 n ationsoutput of $15 trillionThis would include South, Central and North America, from Anchorage to Patagonia, a population of 800 million. This would be the largest free-trade zone on the planet. President Bush favored this. It includes 34 n ations with a combined output of $15 trillion. Import Quotasmaximum amount for Import Quotas sets a maximum amount for an import an import. They may be a more effective protective device than tariffs which do not limit the amount of goods entering a country. FTAA Slide 19 U.S. Costa RicaDominican RepublicEl Salvador GuatemalaHondurasNicaraguaCAFTA is a comprehensive trade agreement between the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. 44 millioncustomers stepping stone to the FTAAIt eliminated tariffs on $46 billion worth of currently traded goods to 44 million customers. CAFTA is considered to be a stepping stone to the FTAA which would include 34 countries. The CAFTA-DR is the first free trade agreement between the United States and a group of smaller developing economies. The vote for CAFTA was 217-215. S ome dont like these trade agreements. Slide 20 Non-tariff Barriers re-inspections Non-tariff Barriers licensing requirements, re-inspections, unreasonable standards pertaining to quality and safety, or red tape unnecessary bureaucratic red tape in customs procedures. Japanese conductre-inspections The Japanese conduct stringent re-inspections of our autos extra $500.00 that cost the Japanese consumer an extra $500.00. 33 % 22 % 31 % 86 % 23 % 25 % Slide 21 Slide 22 Started with these 15 Slide 23 Joined by these 12 by 2007 15 initial mbrs 17 countries now use the EuroAndorra, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Kosovo, Luxembourg, Monaco, Montenegro, Netherlands, Portugal, San Marino, and Cyprus [2008], Malta [2008], Slovakia [2009] & Estonia [2011] These 17 countries now use the Euro: Andorra, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Kosovo, Luxembourg, Monaco, Montenegro, Netherlands, Portugal, San Marino, and Cyprus [2008], Malta [2008], Slovakia [2009] & Estonia [2011]. 4 small countries also use it as their official currency. Slide 24 27 nations 475 million peopleEurozone Euro nationsGDPs27 total$14.5 tril [27 nations 475 million people] [Eurozone includes 17 Euro nations] [GDPs of 27 total around $14.5 trillion] "U.S. of Europe *It's like a "U.S. of Europe [imagine each state in the U.S. having its own currency. If you wanted to buy a product in Louisiana, you would have to buy Louisiana currency and pay a 1-2% fee for doing so.) [After independence, states Formerlytariffs quotas printed their own money. Formerly, there were tariffs and quotas against other European countries. The single currency will create efficiencies leading to U.S. faster growth & facilitate the establishment of a kind of U.S. of Europehuge benefits from free trade of Europe. There will be huge benefits from free trade. boost European The elimination of trade barriers alone will boost European GDPs an average of 6% & lower prices by about 6%. 4-5 million more jobs will be created About 4-5 million more jobs will be created all over Europe. Eurozone 1. Austria 2. Belgium 3. Finland 4. France 5. Germany 6. Greece 7. Ireland Eurozone 8. Italy 9. Luxembourg 10. The Netherlands 11. Portugal 12. Slovenia 13. Spain Eurozone population of 320 M. Slide 25 increase production in two ways European free trade will increase production in two ways. Lower costsincrease output 1. Lower costs, which will increase output. increase productivity 2. It will increase productivity of capital and labor as those basis of comparative advantage Incomes will riseincreasing AD factors are allocated on the basis of comparative advantage. Incomes will rise, increasing AD. Europe will be more prosperous. central bank [European Central Bank] and a single defense forcenational sovereignty goalown central bank operate like So, there will be a central bank [European Central Bank] and a single defense force, or a kind of national sovereignty. This is the goal. Each nation still has its own central bank but they will have no a uthority to conduct m onetary policy. They will operate like regional banks of the Fed regional banks of the Fed. Slide 26 orth merican ree rade greement The U.S. has $967 billion total trade with NAFTA. Exports were $412 billion and imports were $555 billion. Slide 27 Mexico, the U.S., and Canada decided to get rid of import taxes between one another. They joined together to create the worlds largest free trade zone. Labor unions oppose NAFTA Labor unions in Canada and the U.S. oppose NAFTA. They see big companies taking jobs out of the U.S. & Canada because they can do business cheaper in Mexico. NAFTA Many workers feel that NAFTA is giving them theShafta Slide 28 Companies can pay employees less in Mexico, since work is harder to get there. Average factory wages: United StatesMexicoChina $136/day [factors in medical & pension] $8/day$3/day And some companies have even left Mexico to move to Asia! Source: Univ. of Wisconsin, http://www.uwec.edu/geography/Ivogeler/w188/border/maquil.htm Slide 29 NAFTA$17 trillion market452 million NAFTA is a $17 trillion market for 452 million consumers consumers. [1,000 page document] NAFTA20,000 tariffs NAFTA rolled back 20,000 tariffs by 2008. $20 billion per year. American consumers are saving $20 billion per year. Trade within NAFTA totals over $1 trillion. U.S.CanadaMexico $14.6 Tr.$1.5 T rillion $1.1 Trillion GDP$14.6 Tr.$1.5 T rillion $1.1 Trillion [30% live on less than $2 day] [30% live on less than $2 day] 310 mil.33 m illion 109 million [50% in poverty] P opulation 310 mil.33 m illion 109 million [50% in poverty] [Only 28% grad. high school] [Only 28% grad. high school] $48,000$40,000$13,500 [ave. ed. Level is 6 th grade] P er C apita $48,000$40,000$13,500 [ave. ed. Level is 6 th grade] $16.00$17.00$2.00 [.60 min. wage] Ave. Hourly $16.00$17.00$2.00 [.60 min. wage] U.S., Canada, Mexico [U.S., Canada, & Mexico ] Slide 30 Texas exports to Mexico have increased from $19 B to $56 B Carlos Salinas De Gortari Brian Mulroney George Bush Signing of NAFTA $8.9 60 B 50 B 40 B 30 B 20 B 10 B MexicoCanadaChinaS.Korea S ing apore $16 $6.1 $5.2 $5.1 Brazil $5.3 N etherlan ds $56.0 Taiwan $3.2 Slide 31 Carlos Salinas De Gortari Brian Mulroney George Bush Signing of NAFTA $11 60 B 50 B 40 B 30 B 20 B 10 B MexicoCanadaJapan S. Korea H ong K ong $14.2 $9.7 $5.8 $4.4 Germany $5.9 China $17.5 Taiwan $4.1 U.K. $3.9 Slide 32 Carlos Salinas De Gortari Brian Mulroney George Bush Signing of NAFTA $3.2 60 B 50 B 40 B 30 B 20 B 10 B Brazil V enezuela S witzerland C olumbia Mexico $3.4 $2.4 $2.0 $1.4 Domin.Rep $2.1 Canada $4.3 Chile $1.4 Peru $1.1 Slide 33 Mexico 70% Mexico buys 70% of its imports from Texas. Texas exports to Mexico have increased from $19 billion in 1994$56 billion 2009 $19 billion in 1994 to $56 billion in 2009. U.S. goods exported to Mexico U.S. goods exported to Mexico have gone from $51 billion to $152 billion $51 billion to $152 billion, supporting over 1 million jobsImports from Mexico 1 million jobs in the U.S. Imports from Mexico tripled to $216 billion have more than tripled to $216 billion. NAFTA NAFTA encourages more world-wide investment enhancing their productivity in Mexico. This is enhancing their productivity and income income. Some of this increased income is being used buy U.S. exportshigher standard of used to buy U.S. exports. A higher standard of stem the flow of illegal living in Mexico will help stem the flow of illegal immigrants immigrants to the U.S. Slide 34 U.S. Canada Trade U.S. exports to Canada $249 B U.S. imports from Canada $276 B Canadian-Mexican Trade Canadian exports to Mexico $8.3 B C anadian imports from Mexico $16.5 B U.S. - Mexico Trade U.S. exports to Mexico $163 B U.S. imports from Mexico $229 B NAFTA, 2010 Population: 442 million Combined GDP: 16 Trillion 3-Way Trade: $941 Billion Slide 35 our imports come from 1. Most of our imports come from with (developed/developing) nations. our most important trade partner 2. Quantitatively, our most important trade partner is (Japan/Mexico/Canada/Germany/Djibouti). American exports of goods/services 3. American exports of goods/services average about (30%/25%/13%/4%) of GDP. comparative advantage 4. According to the theory of comparative advantage, a good should be produced in that nation where its cost is (most/least) in terms of alternative goods which might otherwise be produced. exchange two goods 5. The ratio at which nations will exchange two goods is the (domestic comparative [opportunity] cost/terms of trade). excise tax on imported goods 6. A (quota/tariff) is an excise tax on imported goods. eliminates tariffs on Cuban rollerblades 7. If the U.S. eliminates tariffs on Cuban rollerblades, we would expect the price of Cuban rollerblades to (increase/decrease) in the U.S. Also employment Cuban rollerblade industry would (increase/decrease) in the Cuban rollerblade industry. Smoot-Hawley Tariff 8. The Smoot-Hawley Tariff of 1930 established very (low/high) tariffs on goods imported to the U.S. GATT 9. GATT included over 100 nations and emphasized tariff (reductions/increases) for members, and (increasing/decreasing) import quotas. Reciprocal Trade AgreementsAct 10. The Reciprocal Trade Agreements Act of 1934 brought about considerable (increases/reductions) in American trade barriers. European Union 11. The European Union (abolished/increased) tariffs among one another and established a system of common tariffs with non-member nations. NAFTA 12. NAFTA included the U.S., Mexico, and (Japan/Canada/Djibouti). Proponents of NAFTA 13. Proponents of NAFTA contend it will (incr/decr) the flow of illegal immigrants (incr/decr) U.S. exports by raising productivity & income in Mexico, and enable the U.S. to obtain (more/less) total output from its scarce resources.