INTERNATIONAL TRADE Pertemuan 25 Matakuliah: J0114-Teori Ekonomi Tahun: 2009

Bina Nusantara University 3 Some Key Facts U.S. Trade Deficit $782 Billion in Goods in 2005 U.S. Trade Surplus $58 Billion in Services in 2005 U.S. Exports Chemicals, Consumer Durables, Agricultural Products, Semiconductors U.S. Imports Petroleum, Automobiles, Appliances, Computers Some of Same Categories are Exported and Imported Canada Largest U.S. Partner Quantitatively

Bina Nusantara University 4 Some Key Facts U.S. Sizable Trade Deficit with China U.S. Dependence on Oil is Reflected U.S. has World’s Highest Trading Volume Exports are 11% of U.S. Output China a Major Trade Force International Trade Links World Economies International Trade is the Center of Policy Debates

Bina Nusantara University 5 Some Key Facts Germany United States China Japan France Netherlands Italy United Kingdom Source: World Trade Organization Shares of World Exports, Selected Nations Percentage Share of World Exports, 2004

Bina Nusantara University 6 The Economic Basis for Trade Labor-Intensive Goods Land-Intensive Goods Capital-Intensive Goods Comparative Advantage –Graphical Analysis –Two Isolated Nations Constant Costs Different Costs U.S. Absolute Advantage in Both Products Opportunity Cost Ratio Graphically…

Bina Nusantara University 7 The Economic Basis for Trade Coffee (Tons) Wheat (Tons) Coffee (Tons) Wheat (Tons) (a) United States(b) Brazil A B

Bina Nusantara University 8 The Economic Basis for Trade Self-Sufficiency Output Mix Specializing Based on Comparative Advantage –Principle of Comparative Advantage Terms of Trade –1W ≡ 1C in the U.S. –1W ≡ 2C in Brazil Gains from Trade Trading Possibility Line –Improved Options –Added Output

Bina Nusantara University 9 The Economic Basis for Trade Coffee (Tons) Wheat (Tons) Coffee (Tons) Wheat (Tons) (a) United States (b) Brazil A B A’ B’ C C’ W c w w’ Trading Possibilities Line Trading Possibilities Line

Bina Nusantara University 10 Supply and Demand Analysis of Exports and Imports World Price Domestic Price Supply and Demand in the United States –U.S. Export Supply Export Supply Curve –U.S. Import Demand Import Demand Curve

Bina Nusantara University 11 Supply and Demand Analysis of Exports and Imports Price (Per Pound; U.S. Dollars Quantity of Aluminum (Millions of Pounds) Quantity of Aluminum (Millions of Pounds) Price (Per Pound; U.S. Dollars (a) U.S. Domestic Aluminum Market (b) U.S. Export Supply and Import Demand DdDd SdSd U.S. Export Supply U.S. Import Demand a b c x y Surplus = 50 Surplus = 100 Shortage = 50 Shortage = 100 U.S. Aluminum Market

Bina Nusantara University 12 Supply and Demand Analysis of Exports and Imports Price (Per Pound; U.S. Dollars Quantity of Aluminum (Millions of Pounds) Quantity of Aluminum (Millions of Pounds) Price (Per Pound; U.S. Dollars (a) Canada’s Domestic Aluminum Market (b) Canada’s Export Supply and Import Demand DdDd SdSd Canadian Export Supply Canadian Import Demand a r s t Surplus = 50 Surplus = 100 Shortage = 50 Canadian Aluminum Market

Bina Nusantara University 13 Supply and Demand Analysis of Exports and Imports Quantity of Aluminum (Millions of Pounds) Price (Per Pound; U.S. Dollars Equilibrium World Price and Quantity of Exports and Imports Canadian Export Supply Canadian Import Demand e World Market for Aluminum U.S. Export Supply U.S. Import Demand Equilibrium

Bina Nusantara University 14 Trade Barriers Revenue Tariff Protective Tariff Import Quota Nontariff Barrier (NTB) Voluntary Export Restriction (VER) Economic Impact of Tariffs –Direct Effects Decline in Consumption Increased Domestic Production Decline in Imports Tariff Revenue –Indirect Effect

Bina Nusantara University 15 Trade Barriers Quantity Price 0 DdDd SdSd PdPd Q S d + Q PtPt PwPw abcd Economic Effects of a Protective Tariff or an Import Quota

Bina Nusantara University 16 Trade Barriers The Case for Protection: A Critical Review –Military Self-Sufficiency Argument –Diversification-for-Stability Argument –Infant Industry Argument Counterarguments Strategic Trade Policy –Protection-Against-Dumping Argument Dumping –Increased Domestic Employment Argument Smoot-Hawley Tariff Act –Cheap Foreign Labor Argument

Bina Nusantara University 17 Trade Adjustment Assistance Trade Adjustment Assistance Act of 2002 Offshoring The World Trade Organization (WTO) –The DOHA Round