International Trade

Dr. David J. MolinaDr. David J. Molina

Economics 4850/5850Economics 4850/5850

Int’l Boundaries Affect Trade

Exchange Rates DifferExchange Rates Differ Commercial Policy DiffersCommercial Policy Differs Domestic Economic Policies DifferDomestic Economic Policies Differ The Extent of Markets DiffersThe Extent of Markets Differs Marketing ConsiderationsMarketing Considerations

What is International Trade?

International Trade is the study of the International Trade is the study of the economic transactions that take place economic transactions that take place between countries, as well as the study of between countries, as well as the study of the impediments (natural and political) to the impediments (natural and political) to those transactions.those transactions.

We will be concerned with “real” issues: to We will be concerned with “real” issues: to study capital flows, balance of payments study capital flows, balance of payments issues, ex. rates, etc. take Int’l Finance issues, ex. rates, etc. take Int’l Finance

The Fundamental Questions of International Trade Who gains and who loses from trade?Who gains and who loses from trade? What determines the pattern of trade?What determines the pattern of trade? What are the barriers to trade?What are the barriers to trade?

Growth and Composition of Trade The volume and value of world exports The volume and value of world exports

have grown tremendouslyhave grown tremendously

Growth In Volume of World Goods Production and TradeGrowth In Volume of World Goods Production and Trade

1963-20031963-2003(Average Annual Percentage Change in Volume)(Average Annual Percentage Change in Volume)

ProductionProduction 63-7363-73 70-7970-79 80-8580-85 85-9085-90 90-9890-98 95-0095-00 20032003

All Commodities All Commodities 6.0%6.0% 4.0%4.0% 1.7%1.7% 3.0%3.0% 2.0%2.0% 4.0%4.0% 1.0%1.0%

AgricultureAgriculture 2.52.5 2.02.0 2.92.9 1.91.9 2.02.0 2.52.5 0.50.5

MiningMining 5.55.5 2.52.5 -2.7-2.7 3.03.0 2.02.0 2.02.0 0.50.5

ManufacturingManufacturing 7.57.5 4.54.5 2.32.3 3.23.2 2.02.0 4.04.0 1.01.0

ExportsExports

All Commodities All Commodities 9.0%9.0% 5.0%5.0% 2.1%2.1% 3.8%3.8% 6.5%6.5% 7.0%7.0% 3.0%3.0%

AgricultureAgriculture 1414 4.54.5 1.01.0 2.22.2 4.04.0 3.53.5 2.52.5

MiningMining 7.57.5 1.51.5 -2.7-2.7 4.84.8 5.55.5 4.04.0 0.50.5

ManufacturingManufacturing 11.511.5 7.07.0 4.54.5 7.07.0 7.07.0 8.08.0 3.03.0

Several Sources, Table 1 in Chapter 1 of TextSeveral Sources, Table 1 in Chapter 1 of Text

Growth and Composition of Trade The volume and value of world exports The volume and value of world exports

have grown tremendouslyhave grown tremendously Manufacturing exports have increased Manufacturing exports have increased

dramatically in the past two decades to dramatically in the past two decades to where it now makes up more than 75% of where it now makes up more than 75% of the Commodity exports. The difference the Commodity exports. The difference split between agriculture and miningsplit between agriculture and mining

Commodity Composition of World Exports Commodity Composition of World Exports

Percent and Billion Dollar value for 2002Percent and Billion Dollar value for 2002Product CategoryProduct Category 19801980 19881988 19921992 19981998 20022002 20022002

AgricultureAgriculture 14.7%14.7% 13.5%13.5% 12.0%12.0% 10.5%10.5% 9.3%9.3% $583$583

MiningMining 27.7%27.7% 12.8%12.8% 12.0%12.0% 9.5%9.5% 12.5%12.5% $788$788

ManufacturingManufacturing 53.9%53.9% 70.2%70.2% 73.3%73.3% 76.1%76.1% 75.1%75.1% $4.708$4.708

Source: Table 6 in your Text and WTOSource: Table 6 in your Text and WTO

Growth and Composition of Trade Manufacturing exports have increased Manufacturing exports have increased

dramatically in the past two decades to dramatically in the past two decades to where it now makes up more than 75% of where it now makes up more than 75% of the Commodity exports. The difference the Commodity exports. The difference split between agriculture and miningsplit between agriculture and mining

Services is also growing rapidly and Services is also growing rapidly and changing in composition (Source WTO)changing in composition (Source WTO)

World Export of Commercial Services by Category

1990, 2000, and 2004 (percent)

Source WTO Chapter 4 of World Trade Statistics

Geographical Composition of Trade Many non-industrial countries are Many non-industrial countries are

increasing in their participation of world increasing in their participation of world tradetrade

The Geographical Origin of World Trade, 2003 (billions of dollars) Value of Exports Share Value of Imports Share United States $ 724.0 9.7% 1,305.6 16.8% Canada 272.1 3.6 245.6 3.2 Japan 471.9 6.3 383.0 4.9 European Union 2,894.0 38.7 2,914.0 37.5 Other industrial countries 942.0 12.6 953.8 12.3 Developing countries 2,178.0 29.1 1,963.0 25.3 Total $7,482.0 100.0% $7,765.0 100.0%

Geographical Composition of Trade Industrialized countries dominate global Industrialized countries dominate global

exporting and importing (although that exporting and importing (although that share is declining)share is declining)

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

The Geographical Origin of World Trade, 2003 (billions of dollars) Value of Exports Share Value of Imports Share United States $ 724.0 9.7% 1,305.6 16.8% Canada 272.1 3.6 245.6 3.2 Japan 471.9 6.3 383.0 4.9 European Union 2,894.0 38.7 2,914.0 37.5 Other industrial countries 942.0 12.6 953.8 12.3 Developing countries 2,178.0 29.1 1,963.0 25.3 Total $7,482.0 100.0% $7,765.0 100.0%

Geographical Composition of Trade Industrialized countries dominate global Industrialized countries dominate global

exporting and importing (although that exporting and importing (although that share is declining)share is declining)

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

The economically powerful regions tend to The economically powerful regions tend to export to themselves export to themselves

Geographical Destination of Exports, 2002

N. America

Latin America

W. Europe

Cent., East.

Europe, Baltic,

and CIS

Africa Middle East

Asia Total

N. America 40.3% 16.1% 17.9% 0.7% 1.2% 2.1% 21.5% 100% Latin America 61.3% 15.4% 12.6% 1.0% 1.2% 1.3% 6.7% 100% W. Europe 10.2% 2.1% 67.3% 6.3% 2.5% 2.6% 7.8% 100% Cent., East. Europe, Baltic, and CIS

4.5% 1.9% 56.2% 25.5% 1.2% 2.4% 7.7% 100%

Africa 17.0% 3.3% 50.9% 0.7% 8.1% 2.3% 16.8% 100% Middle East 15.5% 1.4% 16.4% 0.8% 3.8% 7.1% 47.4% 100% Asia 24.3% 2.4% 16.0% 1.3% 1.6% 3.0% 48.9% 100%

Geographical Composition of Trade Industrialized countries dominate global exporting Industrialized countries dominate global exporting

and importing (although that share is declining)and importing (although that share is declining) The EU is the most important origin and The EU is the most important origin and

destination of traded goodsdestination of traded goods The economically powerful regions tend to export The economically powerful regions tend to export

to themselvesto themselves The big players are the Germany, U.S., Japan, The big players are the Germany, U.S., Japan,

China, U.K., and FranceChina, U.K., and France

Top 10 Merchandise Exporters, 2003 Value $, billions, Percentage Country Share Germany $748.4 10.0% United States 724.0 9.7 Japan 471.9 6.3 China 438.4 5.9 France 384.7 5.1 United Kingdom 303.9 4.1 Netherlands 293.4 3.9 Italy 290.6 3.9 Canada 272.1 3.6 Belgium-Luxembourg 254.6 3.4

Top 10 Merchandise Importers, 2003 Value $, billions, Percentage Country Share United States $1,305.6 16.8% Germany 601.7 7.7 China 412.8 5.3 France 388.4 5.0 United Kingdom 388.3 5.0 Japan 383.0 4.9 Italy 289.0 3.7 Netherlands 261.1 3.4 Canada 245.6 3.2 Belgium-Luxembourg 234.3 3.0

Trade and the U.S.

The U.S. is an economic giant among The U.S. is an economic giant among nationsnations

The U.S. is a relatively “closed” economyThe U.S. is a relatively “closed” economy

International Interdependence for Selected Countries and Groups of Countries, 1970 to 2002 (exports as a % of GDP)

1970 1995 1998 2002

Industrialized Countries: Australia 14% 20% 21% 29% Belgium 52% 74% 73% 82% Canada 23% 37% 41% 44% France 16% 23% 24% 27% Germany NA 23% 27% 35% Italy 16% 26% 27% 27% Japan 11% 9% 10% 10% Netherlands 42% 53% 56% 62% United Kingdom 23% 28% 29% 27% United States 6% 11% 12% 11% Developing Countries: Argentina 9% 9% 9% 28% Chile 15% 29% 25% 36% China 3% 21% 22% 29% Czech Republic NA 52% 58% 65% India 4% 12% 12% 14% Kenya 30% 33% 26% 27% Mexico 6% 25% 31% 27% Nigeria 8% 22% 23% 38%

Geographical Composition of U.S. Trade: Destination of U.S. Exports NAFTA countries are the biggest recipients NAFTA countries are the biggest recipients

of our exports; that share has increased over of our exports; that share has increased over time.time.

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

Direction of U.S. Exports

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Canada Mexico Japan Western Europe Asian NICs Other

perc

ent o

f tot

al e

xpor

ts

1975

1990

1999

Geographical Composition of U.S. Trade: Sources of U.S. Imports NAFTA countries are the source of our NAFTA countries are the source of our

imports; that share has increased over time.imports; that share has increased over time. Western Europe, Japan, and NICs are very Western Europe, Japan, and NICs are very

important sources of our imports, but their important sources of our imports, but their share has decreased recently.share has decreased recently.

Sources of U.S. Imports

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Canada Mexico Japan Western Europe Asian NICs Other

pe

rce

nt

of

tota

l im

po

rts

1975

1990

1999

Commodity Composition of U.S. Merchandise Exports The U.S. tends to export capital goods and The U.S. tends to export capital goods and

industrial suppliesindustrial supplies Capital goods and automotive exports have Capital goods and automotive exports have

become more important over time.become more important over time. Agricultural products have diminished in Agricultural products have diminished in

importanceimportance

Composition of U.S. Merchandise Exports, 1965 - 2000

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Agricultural Industrial Supplies andMaterials

Capital Goods, not Automotive Automotive Other, Mainly ConsumerGoods

pe

rce

nt

of

tota

l ex

po

rts

1965

1980

1990

2000

Commodity Composition of U.S. Merchandise Imports The U.S. tends to import consumer goods The U.S. tends to import consumer goods

and capital goods.and capital goods. Capital goods and consumer goods have Capital goods and consumer goods have

taken up a larger share of imports over time.taken up a larger share of imports over time. Petroleum products have diminished as a Petroleum products have diminished as a

share of imports since the 1980s; this will share of imports since the 1980s; this will not likely continue to be the case.not likely continue to be the case.

Composition of U.S. Merchandise Imports, 1965 - 2000

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

Petroleum Industrial Supplies andMaterials

Capital Goods, not Automotive Automotive Other, Mainly ConsumerGoods

pe

rce

nt

of

tota

l im

po

rts

1965

1980

1990

2000

US Position in World Trade in 1999US Position in World Trade in 1999(percent and ranking)(percent and ranking)

MerchandiseMerchandiseExportExport

Share(Rank)Share(Rank)

ImportImport

Share(Rank)Share(Rank)Rank 1 shareRank 1 share

AgricultureAgriculture 12.1(1)12.1(1) 11.3(1)11.3(1)

Manufactured goodsManufactured goods 13.7(1)13.7(1) 19.3(1)19.3(1)

Iron and SteelIron and Steel 4.3(7)4.3(7) 11.9(1)11.9(1) Japan 10.7Japan 10.7

ChemicalsChemicals 13.7(1)13.7(1) 11.7(1)11.7(1)

Machinery & transport Machinery & transport equipmentequipment

16.3(1)16.3(1) 22.3(1)22.3(1)

Automobile ProductsAutomobile Products 11.5(3)11.5(3) 27.5(1)27.5(1) Germany 17.0Germany 17.0

TextilesTextiles 6.4(6)6.4(6) 9.2(1)9.2(1) China 8.8China 8.8

Transportation ServicesTransportation Services 15.6(1)15.6(1) 15.0(1)15.0(1)

Travel ServicesTravel Services 19.7(1)19.7(1) 15.1(1)15.1(1)

Other Commercial ServicesOther Commercial Services 19.1(1)19.1(1) 11.2(1)11.2(1)

Source: WTO International Statistics 2000Source: WTO International Statistics 2000

Trade in Services

Over $1.7 trillion annually (2003)Over $1.7 trillion annually (2003) About 20% of total trade (closer to 30% for About 20% of total trade (closer to 30% for

U.S.)U.S.)

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

Trade in Services

Over $1.7 trillion annually (2003)Over $1.7 trillion annually (2003) About 20% of total tradeAbout 20% of total trade Most exporters and importers of services Most exporters and importers of services

are industrial countriesare industrial countries

Leading Exporters of Commercial Services Rank 2003 Value Percentage 1970 2003 ($, billions) Share 1 1 $282.5 16.0% United States 2 2 129.5 7.3 U.K. 4 3 111.7 6.3 Germany 3 4 98.0 5.6 France 8 5 76.4 4.3 Spain 5 6 72.8 4.1 Italy 6 7 70.2 4.0 Japan 6 8 64.1 3.6 Netherlands NA 9 44.5 2.5 China NA 10 43.2 2.5 Hong Kong

Leading Importers of Commercial Services ............... Rank 2003 Value Percentage 1970 2003 ($, billions) Share 1 1 $218.2 12.5% United States 2 2 167.0 9.6 Germany 3 3 112.4 6.4 United Kingdom 5 4 109.7 6.3 Japan 4 5 81.6 4.7 France 6 6 74.1 4.3 Italy 8 7 66.2 3.8 Netherlands NA 8 53.8 3.1 China NA 9 48.5 2.8 Ireland 7 10 47.8 2.7 Canada

Geographical Composition of U.S. Trade In 1999, 36.3% of exports and 29.5% of In 1999, 36.3% of exports and 29.5% of

imports go to or are received from NAFTAimports go to or are received from NAFTA

International Trade Regional Impact

Different Regions in the Country can be Different Regions in the Country can be impacted differently from tradeimpacted differently from trade

This has the potential of having income This has the potential of having income effects in the different regions - among effects in the different regions - among other problemsother problems

Percent of Exports to Gross State ProductState 1988 1989 1990 1991 1992 1993 1994 1995

1 Alaska 0.01% 0.04% 0.02% 0.03% 0.03% 0.02% 0.12% 0.01%

2 Alabama 0.17% 0.23% 0.22% 0.20% 0.33% 0.24% 0.30% 0.25%

3 Arkansas 0.12% 0.22% 0.12% 0.23% 0.27% 0.22% 0.32% 0.21%

4 Arizona 1.20% 1.15% 1.24% 1.38% 2.34% 2.26% 2.54% 2.05%

5 California 0.47% 0.56% 0.58% 0.68% 0.79% 0.77% 0.87% 0.80%

6 Colorado 0.12% 0.14% 0.15% 0.11% 0.18% 0.17% 0.21% 0.11%

7 Connecticut 0.18% 0.19% 0.18% 0.26% 0.27% 0.29% 0.37% 0.28%

8 District of Columbia 0.02% 0.02% 0.02% 0.01% 0.02% 0.01% 0.04% 0.02%

9 Delaware 0.23% 0.27% 0.58% 0.57% 0.68% 0.56% 0.75% 0.58%

10 Florida 0.14% 0.17% 0.19% 0.21% 0.23% 0.25% 0.26% 0.17%

11 Georgia 0.12% 0.17% 0.31% 0.25% 0.29% 0.24% 0.30% 0.25%

12 Hawaii 0.00% 0.00% 0.00% 0.02% 0.12% 0.00% 0.04% 0.00%

13 Iowa 0.19% 0.22% 0.16% 0.19% 0.33% 0.24% 0.33% 0.30%

14 Idaho 0.24% 0.14% 0.18% 0.18% 0.17% 0.18% 0.18% 0.17%

15 Illinois 0.18% 0.22% 0.32% 0.38% 0.44% 0.37% 0.49% 0.29%

16 Indiana 0.16% 0.19% 0.20% 0.23% 0.29% 0.28% 0.33% 0.19%

17 Kansas 0.60% 0.46% 0.36% 0.48% 0.56% 0.49% 0.63% 0.49%

18 Kentucky 0.14% 0.15% 0.17% 0.23% 0.26% 0.24% 0.30% 0.17%

19 Louisiana 0.63% 0.77% 0.77% 0.64% 0.83% 0.52% 0.72% 0.59%

20 Massachusetts 0.08% 0.10% 0.12% 0.14% 0.16% 0.17% 0.19% 0.12%

21 Maryland 0.03% 0.02% 0.05% 0.04% 0.05% 0.05% 0.07% 0.04%

22 Maine 0.05% 0.05% 0.06% 0.06% 0.10% 0.07% 0.10% 0.05%

23 Michigan 0.74% 0.92% 0.75% 0.84% 0.69% 0.58% 0.62% 1.22%

24 Minnesota 0.15% 0.17% 0.16% 0.21% 0.23% 0.21% 0.21% 0.14%

Percent of Exports to Gross State ProductState 1988 1989 1990 1991 1992 1993 1994 1995 1996

Mississippi 0.19% 0.26% 0.21% 0.24% 0.23% 0.19% 0.26% 0.35% 0.30%

Montana 0.02% 0.16% 0.07% 0.07% 0.03% 0.08% 0.10% 0.13% 0.23%

North Carolina 0.11% 0.14% 0.16% 0.22% 0.28% 0.30% 0.40% 0.47% 0.48%

North Dakota 0.38% 0.49% 0.41% 0.03% 0.12% 0.13% 0.13% 0.28% 0.41%

Nebraska 0.18% 0.16% 0.10% 0.18% 0.27% 0.28% 0.50% 0.27% 0.56%

New Hampshire 0.06% 0.08% 0.10% 0.15% 0.13% 0.14% 0.18% 0.16% 0.16%

New J ersey 0.14% 0.19% 0.19% 0.20% 0.21% 0.20% 0.24% 0.16% 0.20%

New Mexico 0.07% 0.06% 0.06% 0.06% 0.10% 0.21% 0.24% 0.13% 0.16%

Nevada 0.02% 0.08% 0.10% 0.03% 0.13% 0.06% 0.03% 0.03% 0.03%

New York 0.18% 0.17% 0.16% 0.18% 0.17% 0.16% 0.19% 0.13% 0.15%

Ohio 0.18% 0.21% 0.19% 0.25% 0.28% 0.29% 0.35% 0.23% 0.25%

Oklahoma 0.19% 0.11% 0.10% 0.13% 0.20% 0.27% 0.33% 0.21% 0.24%

Oregon 0.05% 0.07% 0.07% 0.09% 0.17% 0.18% 0.18% 0.11% 0.10%

Pennsylvania 0.15% 0.20% 0.23% 0.27% 0.27% 0.23% 0.28% 0.22% 0.25%

Rhode Island 0.12% 0.15% 0.19% 0.11% 0.18% 0.14% 0.15% 0.13% 0.15%

South Carolina 0.09% 0.10% 0.08% 0.14% 0.18% 0.19% 0.29% 0.29% 0.39%

South Dakota 0.04% 0.04% 0.04% 0.04% 0.05% 0.03% 0.05% 0.04% 0.03%

Tennessee 0.16% 0.26% 0.30% 0.29% 0.37% 0.39% 0.47% 0.39% 0.46%

Texas 2.79% 3.08% 3.42% 3.84% 4.44% 4.50% 4.94% 4.25% 4.91%

Utah 0.19% 0.11% 0.13% 0.12% 0.07% 0.13% 0.27% 0.15% 0.14%

Virginia 0.05% 0.06% 0.07% 0.09% 0.10% 0.13% 0.16% 0.11% 0.14%

Vermont 0.16% 0.10% 0.14% 0.15% 0.17% 0.18% 0.30% 0.30% 0.16%

Washington 0.10% 0.11% 0.08% 0.24% 0.43% 0.22% 0.33% 0.12% 0.15%

Wisconsin 0.09% 0.14% 0.14% 0.24% 0.22% 0.24% 0.33% 0.23% 0.27%

West Virginia 0.07% 0.10% 0.11% 0.11% 0.16% 0.12% 0.07% 0.08% 0.07%

Wyoming 0.03% 0.03% 0.09% 0.05% 0.04% 0.05% 0.06% 0.05% 0.12%

One Last Point

While the US remains the largest country in While the US remains the largest country in terms of International Tradeterms of International Trade

As a Economic Unit the European Union is As a Economic Unit the European Union is a more powerful groupa more powerful group

Merchandise Trade Share of the U.S.and the E.UMerchandise Trade Share of the U.S.and the E.U..(percent)(percent)

ExportsExports

19801980 19851985 19901990 19951995 19981998 19991999 20002000

European European UnionUnion 52.452.4 44.844.8 47.247.2 42.542.5 42.842.8 42.742.7 39.639.6

United United StatesStates 10.510.5 16.616.6 17.017.0 16.716.7 17.917.9 18.418.4 19.319.3

ImportsImports

19801980 19851985 19901990 19951995 19981998 19991999 20002000

European European UnionUnion

43.143.1 37.237.2 43.043.0 41.441.4 42.542.5 42.142.1 39.739.7

United United StatesStates

7.287.28 14.414.4 12.112.1 10.910.9 12.812.8 13.113.1 14.214.2

Source: WTO International Trade Statistics, 2000Source: WTO International Trade Statistics, 2000