Transcript Slide 1

CHAPTER SIX NOTES
I. INTRODUCTION
A. WE DEPEND ON FOREIGN PRODUCTS FOR MANY OF OUR
ACTIVITIES SUCH AS SUVs, COFFEE, COMPUTERS, FOODS,
ETC.
B. EVEN MANY “AMERICAN” PRODUCTS ARE MADE WITH
FOREIGN COMPONENTS. WE CANNOT LIVE IN ISOLATION,
WE DEPEND ON FOREIGN GOODS AND LABOR.
II. LINKAGES
A. SEVERAL ECONOMIC FLOWS LINK THE U.S. ECONOMY
WITH THE ECONOMIES OF OTHER NATIONS.
B. THESE ARE:
1. GOODS AND SERVICES FLOWS
2. CAPITAL AND LABOR (RESOURCE) FLOWS
3. INFORMATION AND TECHNOLOGY FLOWS
4. FINANCIAL FLOWS
III. US AND WORLD TRADE
A. VOLUME AND PATTERN
1. CURRENTLY, US EXPORTS AND IMPORTS ARE 12%
AND 17% OF GDP WHICH IS DOUBLE THEIR IMPORTANCE
OF TWENTY FIVE YEARS AGO.
2. THE U.S. IS WORLD’S LEADING TRADING NATION,
ALTHOUGH ITS SHARE HAS DIMINISHED SINCE WWII
B. DEPENDENCE
1. THE U.S. DEPENDS ON IMPORTS FOR MANY FOOD
ITEMS SUCH AS BANANAS, COFFEE, TEA AND SPICES
2. ON THE EXPORTS SIDE, AGRICULTURE RELIES ON
FOREIGN MARKETS FOR ONE-FOURTH TO ONE-HALF OF
SALES. CHEMICAL, AIRCRAFT, AUTO, MACHINE TOOL,
COAL AND COMPUTER INDUSTRIES SELL MAJOR
PORTIONS OF OUTPUT IN INTERNATIONAL MARKETS.
C. TRADE PATTERN
1. THE U.S. HAS A TRADE DEFICIT IN GOODS. IN 1999,
U.S. IMPORTS EXCEEDED EXPORTS OF GOODS BY
$346 BILLION
2. WHILE WE HAVE DEFICIT IN GOODS TRADE, U.S.
EXPORTS OF SERVICES EXCEEDS THE IMPORT OF
SERVICES BY $81 BILLION
3. THE U.S. IMPORTS SOME OF THE SAME CATEGORIES
IT EXPORTS. SPECIFICALLY, AUTOMOBILES,
COMPUTERS, CHEMICALS AND SEMICONDUCTORS.
4. MOST OF U.S. TRADE IS WITH INDUSTRIALLY
ADVANCED NATIONS.
5. CANADA IS THE U.S. MOST IMPORTANT TRADE
PARTNER QUANTITATIVELY. TWENTY-FOUR PERCENT
OF U.S. EXPORTS SOLD WENT TO CANADIANS.WHO IN
TURN PROVIDED 20 PERCENT OF U.S. IMPORTS
6. THE U.S. HAS SIZABLE TRADE DEFICITS WITH JAPAN
AND CHINA.
7. THE TRADE DEFICIT WITH OPEC NATIONS IS
$12 BILLION. $24 BILLION IN IMPORTS AND $12 BILLION
IN EXPORTS
D. LINKAGES: (INTERNATIONAL TRADE IMPLIES COMPLEX
FINANCIAL LINKAGES AMONG NATIONS). TRADE DEFICITS
MUST BE FINANCED BY BORROWING OR EARNING FOREIGN
EXCHANGE WHICH IS ACCOMPLISHED BY SELLING U.S. ASSETS
THROUGH FOREIGN INVESTMENT IN THE U.S. THE U.S.
BORROWS FROM CITIZENS OF OTHER NATIONS; THE U.S. IS
IS THE WORLD’S LARGEST DEBTOR NATION.
E. FACILITATING FACTORS, WHICH EXPLAIN THE GROWTH OF
TRADE
1. TRANSPORTATION TECHNOLOGY HAS IMPROVED
OVER THE YEARS.
2. COMMUNICATIONS TECHNOLOGY ALLOWS TRADERS
TO MAKE DEALS IN TRADE AND GLOBAL FINANCE VERY
EASILY.
3. TRADE BARRIERS HAVE DECLINED VERY
DRAMATICALLY SINCE 1940 AND THIS TREND TOWARD
FREE TRADE CONTINUES.
4. PEACEFUL RELATIONS HAVE BEEN MAINTAINED
AMONG MOST OF THE INDUSTRIAL NATIONS.
F. PARTICIPANTS:
1. GLOBAL PARTICIPANTS HAVE CHANGED OVER THE
YEARS.
2. NEW PARTICIPANTS HAVE BECOME IMPORTANT,
ESPECIALLY ASIAN COUNTRIES LIKE HONG KONG,
SINGAPORE, SOUTH KOREA AND TAIWAN. CHINA IS
ALSO EMERGING AS IMPORTANT IN GLOBAL TRADE.
COLLAPSE OF COMMUNISM HAS LED TO THE
EMERGENCE OF FORMER SOVIET REPUBLICS AND
EASTERN BLOC NATIONS AS WORLD TRADE
PARTICIPANTS.
3. MODIFICATIONS OF THE CIRCULAR FLOW DIAGRAM
TO INCLUDE FOREIGN SECTOR.
SEE CIRCULAR FLOW NEXT SLIDE
U.S. RESOURCE
MARKETS
G&S
U.S. BUSINESSES
G&S
TAXES U.S. GOV’T
TAXES
U.S. HOUSEHOLDS
U.S. PRODUCT
MARKETS
U.S. IMPORTS
U.S. EXPORTS
FOREIGN
EXPENDITURES
U.S. EXPENDITURES
REST OF THE
WORLD