International Trade

1
International Trade

• Outline
• How open is the U.S. economy?
• Patterns and Trends in International Trade
• Gains from International
• International Trade Restrictions

2
An index of openness
This is a simple measure of the relative
importance of the foreign sector

• Let
• O denote the index of openness
• X is exports
• M is imports
• GDP is gross domestic product

Thus, we have
3
Imports Exports as a Percent of U.S. GDP,
1969-2000
percent
4
(No Transcript)
5
What do we trade with other nations?
Source Bureau of Economic Analysis
6
Who are our major trading partners?
Source Bureau of Economic Analysis
7
Exports and Imports of the United States,
1965-2001
Billions of 1998 dollars
www.economagic.com
8
Exports and Imports of the United States,
1997-2001
Billions of 1998 dollars
www.economagic.com
9
(No Transcript)
10
Comparative Advantage
Recall that a county has a comparative advantage
in the production of a good of service if it can
produce a unit at lower opportunity cost than its
trading partners
11
Why does the U.S. export aircraft?
12
(No Transcript)
13
Why does the U.S. import T-shirts
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
The gains from trade
18
Notice that by specializing and trading according
to comparative advantage, both China and the U.S.
reach a point outside their respective domestic
PPFs.
19
Trade Restrictions
The term protectionism refers to anymeasure
that has the effect of reducing the quantity of
imported goods or services.
Commercial policy Government policy that
influences international trade flows.
20
Types of Trade Restrictions

• Trade embargos Prohibitions on the importation
  (or exportation) of goods and services. Examples
  1973 Oil embargo, trade embargo with Iraq,
  embargo on imported sugar from Cuba.
• Tariffs Taxes imposed on imported goods.
• Quotas Limits on the quantity or value of goods
  or services that can be imported or exported.
  Examples The textile quota, the sugar quota,
  export quota on raw timber.
• Subsidies payments by government to exporters.
  These stimulate trade by allowing the exporter to
  charge a lower price.

21
Protectionism, part 2

• Government procurement Most nations require
  their governments to buy from domestic producers.
  Example the 1933 Buy American Act applicable
  to federal agencies.
• Non-tariff trade barriers Other policies that
  have the effect of reducing the flow of imports
  or exports. Example Health and safety standards,
  import licensing, product design standards,
  bureaucratic red tape.

The Japanese trade ministry (MITI) decided that
snow skis made in the U.S. were not safe enough
for Japanese ski enthusiasts
Other examples European ban on hormone treated
beef and genetically-modified soybeans
22
(No Transcript)
23
(No Transcript)
24
(No Transcript)
25
(No Transcript)
26
(No Transcript)
27
(No Transcript)
28
Arguments for protectionism
President Bushs trade representative Robert
Zoeller says I want fair trade.

• Save domestic jobs
• Dumping
• Government revenue creation.
• National security
• Infant industries

29
Costs of protecting U.S. jobs from foreign
competition
Source Coughlin, et al. (1988) and Hufbauer, et
al. 1986.
30
Tariffs as a percentage of total government
revenue
Country Tariffs as a of Government Revenue
U.K. 0.1
Japan 1.2
U.S. 1.5
Costa Rica 16.1
Ghana 31.2
Dominican Republic 44.2
Lesotho 55.1
Source World Bank