1. Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved. Contemporary Economics: An Applications Approach By Robert J. Carbaugh 3rd Edition Chapter 16: The United States and the Global Economy

2. Carbaugh, Chap. 16 2 Exports of goods & services as a share of GDP, 2000 Open Economy Exports as % Countryof GDP Netherlands56% Norway42 Canada39 Mexico32 South Korea31 United Kingdom28 Germany24 France23 United States12 Japan10 Source: IMF, International Financial Statistics, July 2001

3. Carbaugh, Chap. 16 3 US international trade in goods, 2001 ($ billion) Open Economy US Exports Agricultural products54.9 Industrial supplies & materials150.5 Capital goods321.7 Automotive vehicles, parts & engines75.4 Consumer goods116.3 Total718.8 US Imports Petroleum products103.6 Industrial supplies & materials172.5 Capital goods298.0 Automotive vehicles, parts & engines189.8 Other382.0 Total1,154.9 Source: Economic Report of the President, 2003

4. Carbaugh, Chap. 16 4 Leading trading partners of the US, 1999 Open Economy Value of US CountryExports ($ bill.)Imports ($ bill) Source: IMF, Direction of Trade Statistics, December 2000 Canada$154$178 Japan58125 Mexico7996 China1475 Germany2751 United Kingdom3936 France1825 South Korea1725 Belgium199 Netherlands198

5. Carbaugh, Chap. 16 5 (a) France Autos (per day) A' B' C' Gains from trade Comparative advantage and int'l trade International Trade (a) United States Autos (per day) A B C Gains from trade 0 20 40 60 80 100 120 140 160 180 04080120160200 Computers (per day) 0 20 40 60 80 100 120 140 160 180 04080120160200 Computers (per day)

6. Carbaugh, Chap. 16 6 Examples of comparative advantage International Trade Comparative advantage largely due Countryto natural resources and climate United StatesWheat, corn, cereals CanadaTimber Saudi ArabiaOil FranceWine BrazilCoffee IsraelOranges, grapefruit MexicoTomatoes Comparative advantage largely due to physical Countrycapital, human skills, and scientific knowledge United StatesAircraft, computers, industrial chemicals, plastics, chemicals JapanAutomobiles, steel, electronics GermanyMachine tools, scientific instruments, luxury automobiles United KingdomFinancial services TaiwanTextiles SwitzerlandWatches South KoreaShips

7. Carbaugh, Chap. 16 7 Selected US tariffs International Trade ProductDuty rate Brooms32 cents each Fishing reels24 cents each Wrist watches29 cents each Ball bearings2.4% of value Electrical motors6.7% of value Bicycles5.5% of value Wool blankets1.8 cents/kg + 6% of value Electricity meters16 cents ea. + 1.5% of value Auto transmission shafts25 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

8. Carbaugh, Chap. 16 8 Economic effects of a tariff International Trade Price D US S US Equilibrium without trade World price World price with tariff Imports without tariff Imports with tariff 0 100 200 300 400 500 600 700 800 900 012345678910111213141516171819202122 Steel (mill. Tons)

9. Carbaugh, Chap. 16 9 Estimated consumer cost of saving US jobs through trade protection Tariffs Consumer cost Industryper job Meat$1,850,000 Maritime transport1,138,775 Dairy484,878 Sugar390,200 Motor vehicles208,824 Textile and apparel182,545 Steel128,063 Nonrubber footwear111,702 Source:US Int'l Trade Commission, Economic Effects of Significant US Import Restraints, December 1995

10. Carbaugh, Chap. 16 10 Hourly compensation costs for production workers in manufacturing, 2001 (in US$) Trade Restrictions Norway$23.13 Germany22.86 United States20.32 Finland19.94 Japan19.59 Sweden18.35 Canada15.64 South Korea8.09 Singapore7.77 Taiwan5.70 Mexico2.34 Source:US Dept of Labor, Bureau of Labor Statistics Hourly pay Country($/hour)

11. Carbaugh, Chap. 16 11 Potential winners and losers in the US under trade with Mexico NAFTA Adherence to workers' rights requirements in Mexico could raise Mexican labor costs, making US exports more competitive in Mexico. Consequently, workers in US import- competing businesses could be under less pressure to either give back wages or have their workers’ rights protections threatened. US WinnersUS Losers 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 Labor-intensive, lower wage, import- competing 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.