Presentation on theme: "The importance of exports has grown."— Presentation transcript:
1 The importance of exports has grown. Global TradeThe world is becoming a smaller place. What happens in Tokyo affects whathappens in New York and Dallas, Texas.There is over $12 trillion in world trade.Volume of TradeExports as % of GDPBelgium 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.201013%
2 Where U.S. Imports/Exports Come From - 2010 China $365Canada $276Mexico $230Japan $120Germany $83United Kingdom $50South Korea $49France $39Venezuela $32Saudi Arabia $31Italy $28U.S. ExportsCanada $249Mexico $163China $92Japan $61United Kingdom $49Germany $48Netherlands $35South Korea $39Singapore $29France $27Brazil $35Belgium $26
3 History of Tariffs1. Revenue Tariffs – applied to products not produced domestically[bananas, coffee]. These are normally low & their purpose is to provideincome for the government.2. Protective Tariffs – tax on imports designed to protect domesticproducers from foreign competition [autos, shoes, textiles].*We have tariffs on 8,753 products (70% of our imports). They add about3% to prices. They cost consumers an extra $70 billion. [$1,000 per family]SwitzerlandSingaporeSwedenThe 2.6% is 4rth lowestbehind Singapore,Ireland, & Switzerland.2.6%1st2nd4th3rd2.6%
4 Government and Trade Global Competition Top 12 [Free Traders] - 2010 1-Switzerland2-United States3-Singapore4-Sweden5-Denmark6-Finland7-Germany8-Japan9-Canada10-Netherlands11-New Zealand12-United Kingdom
5 Smoot-Hawley Tariff of 1930 Smoot-Hawley Tariff of so high it decreased imports60% and hurt all international trade. International trade plummeted62% from $60 billion in 1928 to $25 billion in 1938.The next day the stock markettanked and the economy was deadfor 10 years.Unemployment went from 8% to 16% after it was introduced, then marched up to 25% by 1933.Reed SmootWillis HawleyTariffs on over 12,000 products went up. Agricultural tariffswent from 20% to 34%, clocks from 45% to 55%, woolenproducts from 50% to 60%, wines, spirits, & beverages from36% to 47%, corn and butter tariffs were doubled, over 800production items were taxed. Domestic prices fell by over25% while overseas prices rose 60%. By 1933, world tradewas about 1/3 of the 1929 level. All nations were losers. Thispolicy put the “Great” in the Depression."Great"
6 Smoot and Hawley Willis Hawley and Reed Smoot May 5, 1930 1,028 Economists Ask HooverTo Veto Pending Tariff BillProfessors in 179 colleges andother leaders assail rise in tariffsas harmful to country and sureto 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 Policies1. Reciprocal Trade Act – 1934-Roosevelt said to other countries,“If you’ll lower your tariffs, we’ll reciprocate and lowerours 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 toenforce their rules. Tariffs fell from 40% to 4%.3. GATT was based on these three principles.A. Equal, nondiscriminatory treatment for all member nationsB. The reduction of tariffsC. The elimination of import quotas [Based on cooperation andnegotiation, or “I’ll lower mine if you will lower yours.”][There were 8 rounds; here are the last 3.
9 World Trade Organization WTOWTOGATT protected intellectual property (patents,trademarks, and copyrights). GATT in wasreplaced by the World Trade Organization [WTO].These agreements have already boosted the world’sGDP 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, TVsfrom S. Korea, computer screens from Japan, and steel from nearly everywhere on earth. Thereare also restrictions on watches, tobacco, ships, ice cream, cheese, clothing, sugar, & hundredsof 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 specialtysteel, $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 tovoluntarily freeze auto exports to 1.65 million from & 1.85 million in With fewerchoices, domestic car prices rose $2,000 and Japanese car prices rose $2, We had asmaller 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 & imprisonmentof 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 has2/3 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.”
14 WTO Objectives - World's Trade Police force 148WTOWTO 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 membernations [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 WorldwideNew Rules to Promote Trade in ServicesReduction in Agricultural SubsidiesIntellectual Property ProtectionsPhasing Out Textile Quotas and TariffsTariffs were totally eliminated in 2008WTO settled more disputes in 10 years than GATT did in 50 years.World Trade OrganizationWTO
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 recordfor eating bananas (91) in 30 min.Ruling: The WTO ruled that the EU restrictions on bananaimports were harmful and against the rules of trade to whichall nations had agreed. This is but one example of the role ofthe 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.FTAAImport Quotas – sets a maximum amount foran import. They may be a more effective protectivedevice than tariffs which do not limit the amountof goods entering a country.
18 CAFTA-DR Free Trade Agreement of 2004 The vote for CAFTAwasSome don’t like thesetrade 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 BarriersNon-tariff Barriers –licensing requirements, re-inspections,unreasonable standards pertaining to quality and safety, orunnecessary bureaucratic red tape in customs procedures.The Japanese conduct stringent re-inspections of our autosthat cost the Japanese consumer an extra $33%22%31%86%25%23%
21 European Union - 27 Nations Started withthese 15
22 European Union15 initial mbrsJoined bythese 12by 2007These 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 , Malta , Slovakia  & Estonia . 4 small countries also use it as their official currency.
23 Eurozone population of 320 M. 1. Austria2. Belgium3. Finland4. France5. Germany6. Greece7. IrelandEuropean UnionEurozone8. Italy9. Luxembourg10. The Netherlands11. Portugal12. Slovenia13. SpainEurozone 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 paya 1-2% fee for doing so.) [After independence, statesprinted their own money. Formerly, there were tariffs and quotas against other European countries.The single currency will create efficiencies leading tofaster 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 EuropeanGDPs an average of 6% & lower prices by about 6%.About million more jobs will be created all overEurope.
24 European UnionEuropean 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 thosefactors 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 likeregional 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.radegreement
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 theShaftaLabor 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 StatesMexicoChina$136/day[factors in medical & pension]$8/day$3/dayAnd 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 millionconsumers. [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 Countries60 BSigning of NAFTA$56.0George BushCarlos SalinasDe Gortari50 BBrian Mulroney40 B30 B20 B$1610 B$8.9$6.1$5.3$5.2$5.1$3.2MexicoCanadaChinaNetherlandsS.KoreaSingaporeBrazilTaiwan
30 Top California Export Countries - 2009 Signing of NAFTA60 BCarlos SalinasDe Gortari50 BGeorge BushBrian Mulroney40 B30 B20 B$17.5$14.2$11$9.710 B$5.9$5.8$4.4$4.1$3.9MexicoCanadaJapanChinaS. KoreaHong KongGermanyTaiwanU.K.
31 Top Florida Export Countries - 2009 Signing of NAFTA60 BCarlos SalinasDe Gortari50 BGeorge BushBrian Mulroney40 B30 B20 B10 B$4.3$3.4$3.2$2.4$2.1$2.0$1.4$1.4$1.1BrazilVenezuelaSwitzerlandCanadaColumbiaMexicoDomin.RepChilePeru
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 over1 million jobs in the U.S. Imports from Mexicohave more than tripled to $216 billion.NAFTA encourages more world-wide investmentin Mexico. This is enhancing their productivity andincome. Some of this increased income is being usedused to buy U.S. exports. A higher standard ofliving in Mexico will help stem the flow of illegalimmigrants to the U.S.
33 Combined GDP: 16 Trillion North American Free Trade Agreement [NAFTA]NAFTA, 2010Population: 442 millionCombined GDP: 16 Trillion3-Way Trade: $941 BillionU.S. – Canada TradeU.S. exports to Canada $249 BU.S. imports from Canada $276 BCanadian-Mexican TradeCanadian exports to Mexico $8.3 BCanadian imports from Mexico $16.5 BU.S. - Mexico TradeU.S. exports to Mexico $163 BU.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 shouldbe produced in that nation where its cost is (most/least) in termsof 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 priceof Cuban rollerblades to (increase/decrease) in the U.S. Also employmentwould (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 aboutconsiderable (increases/reductions) in American trade barriers.11. The European Union (abolished/increased) tariffs among one anotherand 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 enablethe U.S. to obtain (more/less) total output from its scarce resources.NS 1-13