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The importance of exports has grown.

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1 The importance of exports has grown.
Global Trade The world is becoming a smaller place. What happens in Tokyo affects what happens in New York and Dallas, Texas. There is over $12 trillion in world trade. Volume of Trade Exports as % of GDP Belgium 91% Netherlands 75% Germany 47% S. Korea 45% China 35% [1/3 bought by U.S.] Canada 35% [If we sneeze, Canada catches a cold] Italy 29% France 27% New Zealand 27% Spain 26% United Kingdom 26% France 26% Mexico 25% [80% of Mexico’s exports are sold to U.S.] Japan 18% United States 13% [$1.8 trillion of a $14.8 trillion economy in 2010] World 25% The importance of exports has grown. 2010 13%

2 Where U.S. Imports/Exports Come From - 2010
China $365 Canada $276 Mexico $230 Japan $120 Germany $83 United Kingdom $50 South Korea $49 France $39 Venezuela $32 Saudi Arabia $31 Italy $28 U.S. Exports Canada $249 Mexico $163 China $92 Japan $61 United Kingdom $49 Germany $48 Netherlands $35 South Korea $39 Singapore $29 France $27 Brazil $35 Belgium $26

3 History of Tariffs 1. Revenue Tariffs – applied to products not produced domestically [bananas, coffee]. These are normally low & their purpose is to provide income for the government. 2. Protective Tariffs – tax on imports designed to protect domestic producers from foreign competition [autos, shoes, textiles]. *We have tariffs on 8,753 products (70% of our imports). They add about 3% to prices. They cost consumers an extra $70 billion. [$1,000 per family] Switzerland Singapore Sweden The 2.6% is 4rth lowest behind Singapore, Ireland, & Switzerland. 2.6% 1st 2nd 4th 3rd 2.6%

4 Government and Trade Global Competition Top 12 [Free Traders] - 2010
1-Switzerland 2-United States 3-Singapore 4-Sweden 5-Denmark 6-Finland 7-Germany 8-Japan 9-Canada 10-Netherlands 11-New Zealand 12-United Kingdom

5 Smoot-Hawley Tariff of 1930
Smoot-Hawley Tariff of so high it decreased imports 60% and hurt all international trade. International trade plummeted 62% from $60 billion in 1928 to $25 billion in 1938. The next day the stock market tanked and the economy was dead for 10 years. Unemployment went from 8% to 16% after it was introduced, then marched up to 25% by 1933. Reed Smoot Willis Hawley Tariffs on over 12,000 products went up. Agricultural tariffs went from 20% to 34%, clocks from 45% to 55%, woolen products from 50% to 60%, wines, spirits, & beverages from 36% to 47%, corn and butter tariffs were doubled, over 800 production items were taxed. Domestic prices fell by over 25% while overseas prices rose 60%. By 1933, world trade was about 1/3 of the 1929 level. All nations were losers. This policy put the “Great” in the Depression. "Great"

6 Smoot and Hawley Willis Hawley and Reed Smoot May 5, 1930
1,028 Economists Ask Hoover To Veto Pending Tariff Bill Professors in 179 colleges and other leaders assail rise in tariffs as harmful to country and sure to bring reprisals. Willis Hawley and Reed Smoot

7 1,028 Economists Plead for Veto
And Hoover replied:

8 [There were 8 rounds; here are the last 3.
Trade Policies 1. Reciprocal Trade Act – 1934-Roosevelt said to other countries, “If you’ll lower your tariffs, we’ll reciprocate and lower ours by the same percent.” [up to 50% of existing rates] There were 8 rounds of GATT. The 8th established the WTO. 2. GATT[General Agreement on Tariffs & Trade] 1947–1995 - started with 23 nations and ended with 128 nations – set the rules for world trade. GATT had no mechanism to enforce their rules. Tariffs fell from 40% to 4%. 3. GATT was based on these three principles. A. Equal, nondiscriminatory treatment for all member nations B. The reduction of tariffs C. The elimination of import quotas [Based on cooperation and negotiation, or “I’ll lower mine if you will lower yours.”] [There were 8 rounds; here are the last 3.

9 World Trade Organization
WTO WTO GATT protected intellectual property (patents, trademarks, and copyrights). GATT in was replaced by the World Trade Organization [WTO]. These agreements have already boosted the world’s GDP by $6 trillion [8%]. [*153 nations] U.S. consumers will gain $30 billion annually. [*another 30 hold observer status waiting to become members] We have trade restrictions on oranges from S. America, machine tools from Switzerland, TVs from S. Korea, computer screens from Japan, and steel from nearly everywhere on earth. There are also restrictions on watches, tobacco, ships, ice cream, cheese, clothing, sugar, & hundreds of other products. Sugar quotas for 12,000 sugar growers cost consumers $3 billion per year [cost twice the world price -22 cents per pound v. 10 cents per pound for the world price]. The annual cost of retaining just 1 job through trade restraints is $1 million in specialty steel, $550,000 in nuts and screws, $240,000 in orange juice, and $200,000 in glassware. In 1980, U.S. auto companies sold 1 million fewer cars than in The “Big 3” lost over $4 billion. The “Big 3” demanded protection so they could retool for smaller cars. Japan agreed to voluntarily freeze auto exports to 1.65 million from & 1.85 million in With fewer choices, domestic car prices rose $2,000 and Japanese car prices rose $2, We had a smaller selection, had to wait longer and paid $15.7 billion extra.

10 For Instance, Check This Honda Chinese Knockoff.
*The fake one is on the right [selling for $300]. Offenders face fines of up to $5 million & imprisonment of up to 20 years, and seizure of all fake products. One of these Honda motorcycles is a Chinese knockoff. Counterfeiting cost U.S. companies $250 billion a year. Global counterfeiting cost companies $600 billion a year. China has 2/3 of all counterfeit products. Some of the counterfeiting goods include: 16.5 million Lipitor tablets, $1 million worth of H-P inkjet cartridges, phony Viagra; cigarettes, $100 bills, 11,000 fake parts for Nokia phones, Callaway Golf clubs, Intel Computer chips, shampoos, soaps, teas, 10% of medicines, bogus car parts, Sony PS2’s, & cars. China’s policy seems to be: “If you can make it, we can fake it.”

11 Which is Counterfeit? Knock-off

12

13 And – Looking Ahead To Graduation

14 WTO Objectives - World's Trade Police force
148 WTO WTO Objectives: [They have settled over 300 disputes (broken promises)] 1. Accord national treatment to imported goods [regulate “M” the same as domestic goods] 2. Accord “most favored nation status” to member nations [charge all the same tariffs and quotas] 3. Eliminate tariffs and non tariff barriers. 4. A government must find the best goods internationally.

15 World Trade Organization
Reductions in Tariffs Worldwide New Rules to Promote Trade in Services Reduction in Agricultural Subsidies Intellectual Property Protections Phasing Out Textile Quotas and Tariffs Tariffs were totally eliminated in 2008 WTO settled more disputes in 10 years than GATT did in 50 years. World Trade Organization WTO

16 Example of a Trade Dispute on Bananas
The Dispute: The EU restricted banana imports to bananas from only a few countries that were former colonies. As a result, the price paid for bananas in European markets was about twice the price of bananas in the U.S. The world’s largest banana companies, Dole, Chiquita, and Del Monte, headquartered in the U.S., complained that they were being harmed because their bananas, which came from other countries of Central and South America were excluded from the EU system, which favored a few former colonies. A man from India holds the record for eating bananas (91) in 30 min. Ruling: The WTO ruled that the EU restrictions on banana imports were harmful and against the rules of trade to which all nations had agreed. This is but one example of the role of the WTO in promoting fair and free international trade.

17 Free Trade Area of the Americas (FTAA)
This would include South, Central and North America, from Anchorage to Patagonia, a population of 800 million. This would be the largest free-trade zone on the planet. President Bush favored this. It includes 34 nations with a combined output of $15 trillion. FTAA Import Quotas – sets a maximum amount for an import. They may be a more effective protective device than tariffs which do not limit the amount of goods entering a country.

18 CAFTA-DR Free Trade Agreement of 2004
The vote for CAFTA was Some don’t like these trade agreements. CAFTA is a comprehensive trade agreement between the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. It eliminated tariffs on $46 billion worth of currently traded goods to 44 million customers. CAFTA is considered to be a stepping stone to the FTAA which would include 34 countries. The CAFTA-DR is the first free trade agreement between the United States and a group of smaller developing economies.

19 Non-tariff Barriers Non-tariff Barriers –licensing requirements, re-inspections, unreasonable standards pertaining to quality and safety, or unnecessary bureaucratic red tape in customs procedures. The Japanese conduct stringent re-inspections of our autos that cost the Japanese consumer an extra $ 33% 22% 31% 86% 25% 23%

20 The European Union

21 European Union - 27 Nations
Started with these 15

22 European Union 15 initial mbrs Joined by these 12 by 2007 These 17 countries now use the Euro: Andorra, Austria, Belgium, Finland, France, Germany, Greece , Ireland , Italy, Kosovo , Luxembourg, Monaco, Montenegro, Netherlands, Portugal, San Marino, and Cyprus [2008], Malta [2008], Slovakia [2009] & Estonia [2011]. 4 small countries also use it as their official currency.

23 Eurozone population of 320 M.
1. Austria 2. Belgium 3. Finland 4. France 5. Germany 6. Greece 7. Ireland European Union Eurozone 8. Italy 9. Luxembourg 10. The Netherlands 11. Portugal 12. Slovenia 13. Spain Eurozone population of 320 M. [27 nations – 475 million people] [“Eurozone” includes 17 Euro nations] [GDPs of 27 total around $14.5 trillion] *It's like a "U.S. of Europe” [imagine each state in the U.S. having its own currency. If you wanted to buy a product in Louisiana, you would have to buy Louisiana currency and pay a 1-2% fee for doing so.) [After independence, states printed their own money. Formerly, there were tariffs and quotas against other European countries. The single currency will create efficiencies leading to faster growth & facilitate the establishment of a kind of U.S. of Europe. There will be huge benefits from free trade. The elimination of trade barriers alone will boost European GDPs an average of 6% & lower prices by about 6%. About million more jobs will be created all over Europe.

24 European Union European free trade will increase production in two ways. 1. Lower costs, which will increase output. 2. It will increase productivity of capital and labor as those factors are allocated on the basis of comparative advantage. Incomes will rise, increasing AD. Europe will be more prosperous. So, there will be a central bank [European Central Bank] and a single defense force, or a kind of national sovereignty. This is the goal. Each nation still has its own central bank but they will have no authority to conduct monetary policy. They will operate like regional banks of the Fed.

25 orth merican ree rade greement NAFTA N A F T
The U.S. has $967 billion total trade with NAFTA. Exports were $412 billion and imports were $555 billion. rade greement

26 Many workers feel that NAFTA is giving them the
Mexico, the U.S., and Canada decided to get rid of import taxes between one another. They joined together to create the world’s largest free trade zone. Many workers feel that NAFTA is giving them the Shafta Labor unions in Canada and the U.S. oppose NAFTA. They see big companies taking jobs out of the U.S. & Canada because they can do business cheaper in Mexico.

27 [factors in medical & pension]
Companies can pay employees less in Mexico, since work is harder to get there. Average factory wages: United States Mexico China $136/day [factors in medical & pension] $8/day $3/day And some companies have even left Mexico to move to Asia! Source: Univ. of Wisconsin,

28 NAFTA [January 1, 1994] [U.S., Canada, & Mexico ] U.S. Canada Mexico
GDP $14.6 Tr. $1.5 Trillion $1.1 Trillion [30% live on less than $2 day] Population 310 mil. 33 million 109 million [50% in poverty] [Only 28% grad. high school] Per Capita $48,000 $40,000 $13,500 [ave. ed. Level is 6th grade] Ave. Hourly $16.00 $17.00 $2.00 [.60 min. wage] NAFTA is a $17 trillion market for 452 million consumers. [1,000 page document] NAFTA rolled back 20,000 tariffs by 2008. American consumers are saving $20 billion per year. Trade within NAFTA totals over $1 trillion.

29 Texas’ exports to Mexico have increased from $19 B to $56 B
Top Texas Export Countries 60 B Signing of NAFTA $56.0 George Bush Carlos Salinas De Gortari 50 B Brian Mulroney 40 B 30 B 20 B $16 10 B $8.9 $6.1 $5.3 $5.2 $5.1 $3.2 Mexico Canada China Netherlands S.Korea Singapore Brazil Taiwan

30 Top California Export Countries - 2009
Signing of NAFTA 60 B Carlos Salinas De Gortari 50 B George Bush Brian Mulroney 40 B 30 B 20 B $17.5 $14.2 $11 $9.7 10 B $5.9 $5.8 $4.4 $4.1 $3.9 Mexico Canada Japan China S. Korea Hong Kong Germany Taiwan U.K.

31 Top Florida Export Countries - 2009
Signing of NAFTA 60 B Carlos Salinas De Gortari 50 B George Bush Brian Mulroney 40 B 30 B 20 B 10 B $4.3 $3.4 $3.2 $2.4 $2.1 $2.0 $1.4 $1.4 $1.1 Brazil Venezuela Switzerland Canada Columbia Mexico Domin.Rep Chile Peru

32 NAFTA’s Benefits for Mexico
Mexico buys 70% of its imports from Texas. Texas’ exports to Mexico have increased from $19 billion in 1994 to $56 billion in 2009. U.S. goods exported to Mexico have gone from $51 billion to $152 billion, supporting over 1 million jobs in the U.S. Imports from Mexico have more than tripled to $216 billion. NAFTA encourages more world-wide investment in Mexico. This is enhancing their productivity and income. Some of this increased income is being used used to buy U.S. exports. A higher standard of living in Mexico will help stem the flow of illegal immigrants to the U.S.

33 Combined GDP: 16 Trillion
North American Free Trade Agreement [NAFTA] NAFTA, 2010 Population: 442 million Combined GDP: 16 Trillion 3-Way Trade: $941 Billion U.S. – Canada Trade U.S. exports to Canada $249 B U.S. imports from Canada $276 B Canadian-Mexican Trade Canadian exports to Mexico $8.3 B Canadian imports from Mexico $16.5 B U.S. - Mexico Trade U.S. exports to Mexico $163 B U.S. imports from Mexico $229 B

34 1. Most of our imports come from with (developed/developing) nations.
2. Quantitatively, our most important trade partner is (Japan/Mexico/Canada/Germany/Djibouti). 3. American exports of goods/services average about (30%/25%/13%/4%) of GDP. 4. According to the theory of comparative advantage, a good should be produced in that nation where its cost is (most/least) in terms of alternative goods which might otherwise be produced. 5. The ratio at which nations will exchange two goods is the (domestic comparative [opportunity] cost/terms of trade). 6. A (quota/tariff) is an excise tax on imported goods. 7. If the U.S. eliminates tariffs on Cuban rollerblades, we would expect the price of Cuban rollerblades to (increase/decrease) in the U.S. Also employment would (increase/decrease) in the Cuban rollerblade industry. 8. The Smoot-Hawley Tariff of 1930 established very (low/high) tariffs on goods imported to the U.S. 9. GATT included over 100 nations and emphasized tariff (reductions/increases) for members, and (increasing/decreasing) import quotas. 10. The Reciprocal Trade Agreements Act of 1934 brought about considerable (increases/reductions) in American trade barriers. 11. The European Union (abolished/increased) tariffs among one another and established a system of common tariffs with non-member nations. 12. NAFTA included the U.S., Mexico, and (Japan/Canada/Djibouti). 13. Proponents of NAFTA contend it will (incr/decr) the flow of illegal immigrants (incr/decr) U.S. exports by raising productivity & income in Mexico, and enable the U.S. to obtain (more/less) total output from its scarce resources. NS 1-13


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