MIM 513 Pacific Rim Economies Class Two – Introduction to Trade

Quick review of past section Trade models -Institutions regarding trade -Economic models Trade intervention US / China position on trade Foreign Direct Investment Current Events Country reports – general updates Agenda

Trade ‘Whosoever commands the trade of the world, commands the riches of the world and hence the world itself.’ Sir Walter Raleigh ( ) Basic model of trade Trade : When a firm exports goods to another country FDI: When a firm invests outside its home country Treaties have grown exponentially, 160 nations 2,573 treaties as of 2006.

Transnational institutions affecting world trade International Trade Organization (ITO): 1948 General agreement on tariffs and trade (GATT): 1947 World Trade Organization (WTO): 1995 International Monetary Fund (IMF): 1944 World Bank (WB): 1944 General Agreement on Trade in Services (GATS): 1945 Most-Favored Nation (MFN) Clause Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”

Other trade theories -Production life-cycle theory – developing nations move to net importers when developed -Economies of scale Theory – US lumber -First to scale – Boeing & Microsoft -Factor endowments – -Basic factors – natural resources, climate, location -Advanced factors – technology, skilled labor

Trade Policy / intervention -Tariffs – tax levied on an import from another country -Look to tables 1.1 & figures 1.1 on trade growth and tariff reduction -Subsidies – Gov payment to a private producer -FMV or antidumping - DRAMS -Local content requirements = market access -Politics -Job protection - Unions -National Security – Ports -Retaliation – Cuba or N. Korea -Safety – Recall of beef, toys, or chemicals -Infant industry argument -Human Rights

Tariff affect

Protectionism - US – Agriculture farm subsidies – Soil Bank - China – Currency -WTO -Anti Dumping -IP protection – Trade related aspects of IP (Trips) -Protecting copyrights and patents -Market access – Lower tariffs on particular products -Quotas –limit the product allowed into a country – licenses -Results in consumer and GDP loss -Not same as tarriff which raises P

Current U.S Trade Position Merchandise exports as a percentage of GNP ranged from 7.7% in 1982 to 5.3% in 1986 to 8.1% in 1995 U.S share of world trade declined from 25% in to about 12.7% in 1998 USA is less dependent on exports than other industrial nations. On a per capita basis U.S exports about $3550 worth of goods and imports $4550 worth of goods creating about $1000 trade deficit on a per capital basis In spite of over 7 million business in the U.S only 210,000 are engaged in exporting Large 1500 MNCs account for more than 80% of U.S Trade

US merchandise trade with China and Hong Kong (China), US$ billion Source: OECD ITCS database.

What makes the Asian economy tick “China is the spider in the center of the net.”

Foreign Direct Investment -MNC invest in other country’s markets -FDI Terms -Inflows – Money flowing into the country -Outflows – Money flowing out of country -Stock – accumulation of FDI assets -FDI Theory -Export vs. license -Market barriers -Eclectic – FDI in resources such as oil -Political issues -Balance of payments - $$$ go back to home GDP -Employment benefits with inflows -Free market vs. colonialism

FDI – labor movement -Should receiving country restrict / accept immigration? -Knowledge imports -Congestion costs -Social Friction with cultures -Should the sending country restrict emigration? -Lost taxes? -Brain Drain? -Aging population costs?

Worker rights in Cambodia 1.Should Cambodia have signed this agreement? 2.Is the agreement a case of progress or protectionism? 3.Is it possible to have a comparative advantage in cheap labor? 4.Does the US-Cambodia agreement protect all Cambodian Workers? Should it? 5.How confident are you that Nike & the Gap will stay in Cambodia? Would you?

Samuelson – Ricardo / Mill -How does comparative advantage deal with productivity differences? -What happens when productivity improves for one nation over another? -If a technology change occurs how does it affect trading partners? If it is productivity how does it affect partners?