Globalization and World Trade

Globalization a la Facebook

Openness Trade in goods and services FinanceLabor Nations are more closely linked through trade in goods and services, through flows of money, through investments, but not through labor flows.

Examples: –Countries that are very open to international trade? –Countries that are not participating in international trade? –Countries whose financial markets are very open? –Countries that are not open to flows of money? –A previous era of globalization? Is the Study of International Economics Important?

The Least Open Country

Current U.S. Trade Balance onal/trade/tradnewsrelease.htm onal/trade/tradnewsrelease.htm

Recent Global Trade

Recent World Trade

U.S. Trade Balance

U.S. Average Tariff Rate

Chinese Trade

Trade Openness (exports+imports)/GDP

U.S. Net Foreign Assets

Financial Openness

Flows of Capital to Developing Countries (as Percentage of Advanced-Country GDP)

Labor Openness Immigrants as a Percentage of the U.S. Population

What is different about the study of international economics from a study of a national economy? On the trade side: –Governments regulate international trade (tariffs, quotas and regulation) and investment (taxes and regulation). –Governments can discriminate against a subgroup (typically foreign) companies. On the monetary side: –Governments control the supply of their currency. –Governments can control the (nominal) exchange rate. –Governments can regulate capital flows. On the labor side: –Governments can set immigration policy, and to a lesser extent, governments can also set emigration policy.

Patterns of Trade Differences in labor productivity may explain why some countries export/import certain products. Differences in climate and resources can explain why Brazil exports coffee and Australia exports iron ore. How relative supplies of capital, labor and land are used in the production of different goods may also explain why some countries export certain products. But why does Japan export automobiles, while the US exports aircraft? Historical developments can also inform us about the patterns of trade.

Gains from Trade 1. Trade is a voluntary transaction, both sides receive something that they want. 2. Even a country that is the most efficient producer of everything will gain from trade. –Ricardian Comparative advantage. 3. Countries will export goods which use abundant resources and imports goods which use scarce resources. –H-O trade theory 4. With trade, countries can specialize -IRS theory

Harm from Trade Trade is predicted to benefit countries as a whole, but trade may harm particular groups within a country. –International trade can adversely affect the owners of resources that are used intensively in industries that compete with imports. –Trade may therefore have effects on the distribution of income within a country. Specialization induced by trade can also make countries more vulnerable to shocks.

International Trade Versus International Finance International trade focuses on transactions of real goods and services across nations. –These transactions usually involve a physical movement of goods or a commitment of tangible resources like labor services. –Intra-temporal trade. International finance focuses on financial or monetary transactions across nations. –For example, purchases of US dollars or financial assets by Europeans. –Inter-temporal trade.

The Effects of Government Policies on Trade Policy makers affect the amount of trade in goods, services, and financial assets through –tariffs: taxes on imports or exports, –quotas: a quantity restriction on imports or exports, –export subsidies: a payment to producers that export, –or through other regulations (e.g., product specifications) that exclude foreign products from the market, or restrict exports of certain domestic products, services or financial assets. What are the costs and benefits of these policies?

–Describe the detailed impact of any trade policy; both intended and unintended. –What are the benefits and drawbacks of the policy in question? –How do we aggregate / evaluate the total impact of this policy? –Are there different frameworks of ethical reference that lead to different conclusions? –What do I think? An Ethical Framework