Copyright 2008 The McGraw-Hill Companies 5-1 International Linkages United States and World Trade...
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Copyright 2008 The McGraw-Hill Companies 5-1 Internation al Linkages United Stat es and Worl d Trade Specializat ion and Com parative Ad vantage The Foreign Exchange M arket Government and Trade Last Word Key Terms End Show 5 The United States and the Global Economy
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Transcript of Copyright 2008 The McGraw-Hill Companies 5-1 International Linkages United States and World Trade...
Copyright 2008 The McGraw-Hill Companies5-1
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
5The United States and the Global Economy
Copyright 2008 The McGraw-Hill Companies5-2
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Chapter Objectives• Key Facts About U.S.
International Trade• Comparative Advantage,
Specialization, and International Trade
• How Exchange Rates are Determined in Currency Markets
• How and Why Government Sometimes Interferes with Free International Trade
• Role Played by Free-Trade Zones and the WTO in Promoting International Trade
Copyright 2008 The McGraw-Hill Companies5-3
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
International Linkages
UnitedStates
Economy
OtherNational
Economies
Goods & Services
Capital & Labor
Information & Technology
Money
Trade Flows
Resource Flows
Information & Technology Flows
Financial Flows
Copyright 2008 The McGraw-Hill Companies5-4
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World Trade
• Volume
• Dependence
• Trade Patterns
• Financial Linkages
Volume and Pattern
Copyright 2008 The McGraw-Hill Companies5-5
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World TradeVolume and Pattern
Exports of Goods & Services – 2005Selected Countries as a Percent of GDP
BelgiumNetherlandsSouth KoreaGermanyCanadaNew ZealandItalyFranceUnited KingdomSpainJapanUnited States
Source: IMF, International Financial Statistics, 2005
11%
87%71%44%40%38%28%27%26%26%25%13%
Copyright 2008 The McGraw-Hill Companies5-6
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World TradeVolume and Pattern
U.S. Trade as a Percentage of GDPInflation Adjusted to Dollar Value in 2000
0
2
4
6
8
10
12
14
16
18
1975 1980 1985 1990 1995 2000 2005Source: Bureau of Economic Analysis
Per
cen
tag
e o
f G
DP
Exports
Imports
Copyright 2008 The McGraw-Hill Companies5-7
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World TradeVolume and PatternPrincipal U.S. Exports & Imports – 2005in Billions of Dollars
ChemicalsConsumer DurablesAgricultural ProductsSemiconductorsComputersGenerating EquipmentAutomobilesAircraftMedicalTelecommunications
PetroleumAutomobilesHousehold AppliancesComputersMetalsClothingConsumer ElectronicsGenerating EquipmentSemiconductorsTelecommunications
Exports Imports
Source: Department of Commerce Data
$68.653.552.947.245.533.230.429.127.625.6
$251.6123.7
97.193.383.879.147.343.137.125.8
Copyright 2008 The McGraw-Hill Companies5-8
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World TradeVolume and PatternU.S. Exports & Imports – 2005in Goods by Area
Industrial Countries
Developing Countries
Total
Industrial Countries
Developing Countries
Total
Exports to Imports from
Source: Survey of Current Business, April 2006
ValueBillions
Of Dollars
ValueBillions
Of Dollars
$483
410
$893
$770
904
$1,674
Imports Exceed Exports by $781 BillionThat’s over 15,620,000 jobs at $50,000 each!
Was $484 Billion in 2002 & $346 Billion in 1999
Copyright 2008 The McGraw-Hill Companies5-9
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World Trade
• Transportation Technology
• Communications Technology
• General Decline in Tariffs
• Multinational Corporations
Rapid Trade Growth
Copyright 2008 The McGraw-Hill Companies5-10
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
United States and World TradeParticipants in International Trade
Source: World Trade Organization
Comparative Exports - 2004
GermanyUnited States
ChinaJapan
FranceNetherlands
ItalyUnited Kingdom
CanadaBelgium
South KoreaMexicoRussiaTaiwan
Singapore
0 100 200 300 400 500 600 700 800 900
$912$819
$593$566
$449$358$349$347
$317$307
$254$189$184$183$180
GLOBAL PERSPECTIVE
Billions of Dollars
Copyright 2008 The McGraw-Hill Companies5-11
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Specialization and Comparative Advantage
• Absolute Advantage
• Comparative Advantage–Comparative Costs
• Specialization and Trade
• Terms of Trade
O 5.1
W 5.1
Copyright 2008 The McGraw-Hill Companies5-12
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
The Foreign Exchange Market
Exchange RatesForeign Currency Per U.S. Dollar
$1 Will Buy44.3 Indian rupees
.57 British pounds
1.16 Canadian dollars
10.7 Mexican pesos
1.31 Swiss francs
.83 European euros
117 Japanese yen
975 South Korean won
7.8 Swedish kronors
March 2006
GLOBAL PERSPECTIVE
Copyright 2008 The McGraw-Hill Companies5-13
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
The Foreign Exchange MarketExchange RatesDollar – Yen Market
P
QQuantity of yen
Do
llar
pri
ce o
f 1
yen
.01
Qe
Dy
Sy
Exchange Rate:$.01=¥1
G 5.1
Copyright 2008 The McGraw-Hill Companies5-14
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
The Foreign Exchange MarketExchange RatesChanging Rates: Depreciation and Appreciation
Equals
Equals
Equals Equals
Dollar Price ofForeignCurrencyRises
InternationalValue of DollarFalls (DollarDepreciates)
ForeignCurrency PriceOf DollarFalls
InternationalValue of ForeignCurrency Rises(Foreign CurrencyAppreciates)
Copyright 2008 The McGraw-Hill Companies5-15
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
Trade Impediments and Subsidies
• Protective Tariffs• Import Quotas• Nontariff Barriers• Export Subsidies
Copyright 2008 The McGraw-Hill Companies5-16
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and TradeWhy Government Trade
Interventions?• Misunderstanding the
Gains from Trade• Political
Considerations• Costs to Society
Copyright 2008 The McGraw-Hill Companies5-17
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
• Trade War• Smoot-Hawley Tariff Act of
1930• Reciprocal Trade
Agreements Act of 1934–Negotiating Authority–Generalized Reductions–Most-Favored-Nation Clauses
Multilateral Trade AgreementsAnd Free-Trade Zones
Copyright 2008 The McGraw-Hill Companies5-18
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
• General Agreement on Tariffs and Trade (GATT)–Equal Trade Treatment
–Reduction in Tariffs
–Elimination of Import Quotas
• Uruguay Round
Multilateral Trade AgreementsAnd Free-Trade Zones
Copyright 2008 The McGraw-Hill Companies5-19
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
• World Trade Organization (WTO)
• Doha Round (Doha, Qatar)
• The European Union (EU)–EU Trade Bloc–The Euro
Multilateral Trade AgreementsAnd Free-Trade Zones
Copyright 2008 The McGraw-Hill Companies5-20
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
• North American Free Trade Agreement (NAFTA)–Canada, Mexico, and U.S.–Fears and
Accomplishments–Job Creation–Higher Standard of Living
Multilateral Trade AgreementsAnd Free-Trade Zones
Copyright 2008 The McGraw-Hill Companies5-21
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Government and Trade
Top 12 Globalized Nations - 2005
Source: A. T. Kearney, Foreign Policy
1-Singapore2-Ireland
3-Switzerland4-United States5-Netherlands
6-Canada7-Denmark8-Sweden9-Austria
10-Finland11-New Zealand
12-United Kingdom
GLOBAL PERSPECTIVE
Global Competition
Copyright 2008 The McGraw-Hill Companies5-22
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Petition of the Candlemakers
• Problems with Protectionism• Satire on Candlemakers 1845• Sought to Remove Competition
from Trade on Light Sources• The Sun is also a Light Source• Close Out All Natural Light to
Increase Demand for Candles and Raw Materials to Make Them
• Taken to Extreme, There is No Way to Remove Competition
Last
Word
Copyright 2008 The McGraw-Hill Companies5-23
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
Key Terms• multinational corpora
tions• comparative advanta
ge• terms of trade• foreign exchange mar
ket• exchange rates• depreciation• appreciation• protective tariffs• import quotas• nontariff barriers• export subsidies• Smoot-Hawley Tariff
Act
• Reciprocal Trade Agreements Act
• most-favored-nation clauses
• General Agreement on Tariffs and Trade (GATT)
• World Trade Organization (WTO)
• Doha Round• European Union (EU)• trade bloc• euro• North American Free
Trade Agreement (NAFTA)
Copyright 2008 The McGraw-Hill Companies5-24
International Linkages
United States and World Trade
Specialization and Comparative Advantage
The Foreign Exchange Market
Government and Trade
Last Word
Key Terms
End Show
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Measuring Domestic Output and National Income
