The Multilateral Trade System Lecture 17. Snapshot of U.S. Trade How Much? 1998: $1,587.4 Billion Imports and Exports of Goods and Services 1998 GDP $8,760.0.

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Presentation transcript:

The Multilateral Trade System Lecture 17

Snapshot of U.S. Trade How Much? 1998: $1,587.4 Billion Imports and Exports of Goods and Services 1998 GDP $8,760.0 Billion Openness: 18.1% Source: Economic Report of the President, 2000

Top Ten Trading Partners ($U.S. Billions, August 2000) Canada268.9 Mexico161.5 Japan138.8 China73.1 Germany58 United Kingdom55.4 South Korea44.2 Taiwan42.9 France32.0 Singapore23.6 Source: U.S. Bureau of Economic Analysis Total: 898.4

Top Ten Deficits ($U.S. Billions, August 2000) Japan-54.0 China-52.4 Canada-32.9 Germany-19.4 Mexico-16.0 Taiwan-10 Italy-9.6 Malaysia-9.2 Venezuela-8.4 South Korea-7.0 Source: U.S. Bureau of Economic Analysis

Top 9 Surpluses, 2000 ($US Billions) Netherlands12.3 Australia6.0 Brazil4.5 Belgium4.0 Hong Kong3.2 Egypt2.4 Argentina1.6 United Arab Emirates1.3 Panama1.3 Source: U.S. Bureau of Economic Analysis

US Exports and Imports ($Million) ExportsImports Aircraft49,611Motor Vehicles96,888 Auto Parts29,398Crude Oil50,662 Computers26,715Computers49,173 Telecom Equip24,381Computer Components 31,906 Computer Components 20,811Auto Parts26,044 Motor Vehicles17,060Toys and Sporting Goods 18,991 Piston Engines12,388Apparel17,961 Source: U.S. Department of Commerce

Why Accept Hegemonic Role? Altruism: Created the Postwar Economy Because it was Needed and No Other Country Could. Security: Created the Postwar Economy Because U.S. Security Interests Necessitated it (Liberalism). Materialistic: Created the Postwar Economic System Because American Economic Actors Stood to Realize Large Benefits From Open Trade and Stable Exchange Rates.

Why the GATT/WTO? Mercantilism versus Trade Theory Trade Theory: Imports Good, Exports Bad. Mercantilism: Exports Good, Imports Bad. Trade Liberalization Possible Only By Exchanging Concessions—You Open Your Market to My Exports, I Open My Market to Your Exports. Anarchic System Makes it Difficult to Enforce Trade Agreements (Prisoners’ Dilemma). GATT/WTO Provide Enforcement Mechanism Rules Increase Transparency (Who’s Cheating?) Dispute Settlement Mechanism Provides Neutral 3 rd Party to Examine and Resolve Disputes.

Three Principles of the GATT/WTO Non-Discrimination Embodied in Most Favored Nation (MFN) (Article I) Reciprocity and Progressive Tariff Reductions Domestic Safeguards In 1994, the GATT Transformed in the World Trade Organization (WTO)

The GATT/WTO Process GATT Bargaining Rounds Eight Rounds Between 1947 and 1994; 9 th Underway Kennedy Round ( ) is High Water Mark of Tariff Reductions. Uruguay Round ( ) Brings Institutional Change (World Trade Organization). Developing Countries Were Very Reluctant Participants: Didn’t Believe That Free Trade Worked to Their Advantage Believed GATT Bargaining Process Biased Against their Exports

Consequences of the GATT

1. Tariff Reductions United States European Union Japan % % 18% %9%11% 19806%7%6% 20004% 5%

2. Growth of World Trade

3. Growth of Foreign Direct Investment

4. Global Division of Labor

Distribution of Manufacturing Production

Distribution of LDC Manufacturing

North-South Distribution of Foreign Direct Investment

Distribution of LDC FDI

The Global Division of Labor Advanced Industrialized Countries Comparative Advantage in Capital and Human Capital Intensive Goods—Pharmaceuticals, Computers and Software, Telecommunications Systems, Aircraft. Asian Newly Industrializing Countries Comparative Advantage in Mature Capital Intensive Goods—Steel, Semiconductors, Autos. Other Developing Countries Comparative Advantage in Labor Intensive Goods (Apparel & Footwear; Assembly) and in Primary Commodities.