Transcript Document

Contemporary Economics:
An Applications Approach
By Robert J. Carbaugh
3rd Edition
Chapter 16:
The United States and the
Global Economy
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
Open Economy
Exports of goods & services as a share of GDP, 2000
Country
Exports as %
of GDP
Netherlands
Norway
Canada
Mexico
South Korea
United Kingdom
Germany
France
United States
Japan
56%
42
39
32
31
28
24
23
12
10
Source: IMF, International Financial Statistics, July 2001
Carbaugh, Chap. 16
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Open Economy
US international trade in goods, 2001 ($ billion)
US Exports
Agricultural products
Industrial supplies & materials
Capital goods
Automotive vehicles, parts & engines
Consumer goods
Total
54.9
150.5
321.7
75.4
116.3
718.8
US Imports
Petroleum products
103.6
Industrial supplies & materials
172.5
Capital goods
298.0
Automotive vehicles, parts & engines 189.8
Other
382.0
Total
1,154.9
Source: Economic Report of the President, 2003
Carbaugh, Chap. 16
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Open Economy
Leading trading partners of the US, 1999
Country
Canada
Japan
Mexico
China
Germany
United Kingdom
France
South Korea
Belgium
Netherlands
Value of US
Exports ($ bill.)
Value of US
Imports ($ bill)
$154
58
79
14
27
39
18
17
19
19
$178
125
96
75
51
36
25
25
9
8
Source: IMF, Direction of Trade Statistics, December 2000
Carbaugh, Chap. 16
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International Trade
Comparative advantage and int'l trade
(a) France
Autos (per day)
Autos (per day)
(a) United States
180
160
140
120
100
180
160
140
120
100
Gains from
trade
80
80
60
B'
60
A
C
40
40
C'
20
20
A'
Gains from
trade
B
0
0
0
40
80
120
160
Computers (per day)
Carbaugh, Chap. 16
200
0
40
80
120
160
200
Computers (per day)
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International Trade
Examples of comparative advantage
Country
Comparative advantage largely due
to natural resources and climate
United States
Canada
Saudi Arabia
France
Brazil
Israel
Mexico
Wheat, corn, cereals
Timber
Oil
Wine
Coffee
Oranges, grapefruit
Tomatoes
Country
Comparative advantage largely due to physical
capital, human skills, and scientific knowledge
United States
Japan
Germany
United Kingdom
Taiwan
Switzerland
South Korea
Aircraft, computers, industrial chemicals, plastics, chemicals
Automobiles, steel, electronics
Machine tools, scientific instruments, luxury automobiles
Financial services
Textiles
Watches
Ships
Carbaugh, Chap. 16
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International Trade
Selected US tariffs
Product
Duty rate
Brooms
Fishing reels
Wrist watches
Ball bearings
Electrical motors
Bicycles
Wool blankets
Electricity meters
Auto transmission shafts
32 cents each
24 cents each
29 cents each
2.4% of value
6.7% of value
5.5% of value
1.8 cents/kg + 6% of value
16 cents ea. + 1.5% of value
25 cents ea. + 3.9% of value
US tariffs are expressed as a dollar amount per unit of
imported product, a percentage of its value, or a
combination of the two.
Source: US Int'l. Trade Commission, Tariff Schedules of the United States, 2003
Carbaugh, Chap. 16
7
International Trade
Price
Economic effects of a tariff
900
SUS
800
700
600
Equilibrium without trade
500
Imports
with tariff
World price
with tariff
400
300
World price
200
100
DUS
Imports
without tariff
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Steel (mill. Tons)
Carbaugh, Chap. 16
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Tariffs
Estimated consumer cost of saving US jobs
through trade protection
Industry
Consumer cost
per job
Meat
$1,850,000
Maritime transport
1,138,775
Dairy
484,878
Sugar
390,200
Motor vehicles
208,824
Textile and apparel
182,545
Steel
128,063
Nonrubber footwear
111,702
Source:US Int'l Trade Commission, Economic Effects of Significant US Import Restraints, December 1995
Carbaugh, Chap. 16
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Trade Restrictions
Hourly compensation costs for production
workers in manufacturing, 2001 (in US$)
Country
Norway
Germany
United States
Finland
Japan
Sweden
Canada
South Korea
Singapore
Taiwan
Mexico
Hourly pay
($/hour)
$23.13
22.86
20.32
19.94
19.59
18.35
15.64
8.09
7.77
5.70
2.34
Source:US Dept of Labor, Bureau of Labor Statistics
Carbaugh, Chap. 16
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NAFTA
Potential winners and losers in the US under trade with Mexico
US Winners
Potential effects of
trade liberalization
(example: NAFTA)
Higher skill, higher tech businesses
could benefit from reduced trade
barriers.
Labor-intensive businesses that
relocate to Mexico could benefit by
reducing production costs.
Domestic businesses that use imports
as components in the production
process may save on production
costs.
Potential effects of
trade liberalization
modified by
workers' rights
adherence in
Mexico
Carbaugh, Chap. 16
Adherence to workers' rights
requirements in Mexico could raise
Mexican labor costs, making US
exports more competitive in Mexico.
Consequently, workers in US importcompeting businesses could be under
less pressure to either give back
wages or have their workers’ rights
protections threatened.
US Losers
Labor-intensive, lower wage, importcompeting businesses could lose from
reduced protections (tariffs) on
competing imports.
Workers in import-competing
businesses could lose if their
businesses close or relocate.
Some US firms wanting to relocate to
Mexico to save on labor costs could
be discouraged from doing so
because workers' rights adherence
could increase their production costs.
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