INTERNATIONAL

1
INTERNATIONAL TRADE
2
KEY FACTS ON TRADE
Export Goods Services 12 of American GDP
Exports Have More Than Doubled as a Percent of
GDP since 1975
369 Billion Trade Deficit in 2000
3
GLOBAL PERSPECTIVE
Shares of World Exports, Selected Nations, 1999
0 2 4 6 8
10 12
United States Germany Japan France United
Kingdom Canada Italy
Source World Trade Organization
4
ECOMOMIC BASIS FOR TRADE
Distribution of Economic Resources Different
Technologies and/or Resources Goods are
Differentiated as to Quality and other Nonprice
Attributes
5
ECOMOMIC BASIS FOR TRADE

• Labor-Intensive Goods
• Land-Intensive Goods
• Capital-Intensive Goods

6
Brazil
United States
A
B
7
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
U.S has comparative advantage in wheat
Brazil has comparative advantage in coffee
8
Advantage

• Comparative advantage
• Absolute advantage
• One does not imply the other.
• One Country can have absolute advantage in both
  the goods
• If One country has comparative advantage in one
  good, the other country will have comparative
  advantage in the other good

9
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
Terms of Trade
Gains From Trade Improved Options
Trading Possibilities Line
10
The Gains from Trade
US
45 40 35 30 25 20 15 10 5 0
Brazil
Trading possibilities line
30 25 20 15 10 5 0
Coffee (tons)
Coffee (tons)
Trading possibilities line
A
A
B
B
5 10 15 20 25 30
5 10 15 20
Wheat (tons)
Wheat (tons)
11
TRADE BARRIERS
Tariffs Revenue Tariff Protective Tariff Import
Quota Nontariff Barrier (NTB) Voluntary Export
Restriction (VER)
12
ECONOMIC IMPACT OF TARIFFS

• Direct Effects
• Decline in Consumption
• Increased Domestic Production
• Decline in Imports
• Tariff Revenue

Indirect Effects
13
ECONOMIC IMPACT OF TARIFFS
Economic Impact of Quotas Net Costs of Tariffs
and Quotas Impact On Income Distribution