Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea US EU Australia China Farm Products Chapter 2: International Trade in Goods & Services Transportation services

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea LECTURE PLAN Changes in merchandise trade patterns: Changes in value, volume » Reasons for changes in trade composition » Processing trade » Intra-industry trade » Prices trends Services Trade patterns: » Changes in product composition » Leading players 2 -2

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea World Exports Growth, by value ( Merchandise and Services) 2 -3

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea World Trade in 2000 l Value up by 12.5% to reach nearly US$6.2 trillion »partly because of higher oil prices »semiconductors up by 37% to US$ 204 billion »mobile phones up by 46% »personal computers up by nearly 15% to 135 million units l World exports dipped 1% in volume in 2001 and contracted 4% in value. l For 2002,WTO predicts a moderate recovery of around 1% 2 -4

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Annual trend growth rates of world merchandise exports and production 2 –5

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea International merchandise trade Value vs. volume (Table 2.1) l Value growth factors » physical demand » variations in international prices » product mix & product quality » exchange rates (“the valuation effect”) » capital flows and trade policy l Volume growth » e.g. measured at constant prices and exchange rates » More realistic expression of trade growth 2 -6

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Product composition of world merchandise exports (% by product group) 2 -7

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Chemicals Automotive Clothing Average annual growth rate for the main manufactures, , %p.a % p.a All manu- factures 2 -8

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Recent trend: ”Processing Trade” l Preferential tariff duty-free access to those imports, which are bound for the processing and assembling of goods destined for exports l About 850 “Export processing zones” l Mixed success in expanding trade and employment l Value varies from US$ 0.7 billion in Bangladesh to US$ billion in China. l On the way down in NAFTA 2-9

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Recent trend: ”Intra-industry Trade” l The exchange of the same category of products. l T= 1- I X - M I / (X + M) l Reasons: »Trade takes place in differentiated products »Economies of scale(which require a limited range specialisation) 2-10

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Leading services traders »Eight of the top ten exporters of services are also among the top ten importers of services. »Over , several economies increased their export ranking by four places or more.  China and Ireland up 14 places to ranking 15  India(+11); Hong Kong(+5); Israel(+5),  High concentration of international trade 2 -11

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea International Prices Trends l Long-term downward trend in the relative prices of most primary products compared to those of manufactures. l Average decline of international prices over of 1%, the net result from: »Decrease in prices of manufactures and non- fuel primary products »Increase in fuel prices 2-12

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Recent downward trend in the prices of manufactures »After decades of steady growth,over the prices for manufactures have steadily declined, reaching in 2000 their lowest level in 10 years. »Apparent reasons: –Strong technological innovation and competition in the high-tech sectors –Low inflation and the strong US dollar 2-13

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Terms of trade Export price index u Terms of trade index= x 100 Import price index u TTI > 100 Favourable u TTI < 100Unfavourable u TTI = 100 Unchanged 2-14

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Share of World merchandise exports, by region, 1983,

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Merchandise Trade recovery in Asia(5)*, Source: WTO * Indonesia, Korea Rep., Malaysia, Philippines Thailand; 2-16

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Share of World merchandise imports, by region, 1983,

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Reasons for changes in Trade Patterns l Engel’s Law l Price trends l Technological developments l Multinational enterprises l Regional trading blocks 2-18

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Merchandise and Services as a percentage of World Exports Merchandise Services Source: GATT/WTO 2-19

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Exports of commercial services by category 2-20

Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment by John Gionea Slides prepared by John Gionea Services trade in developing countries l Services- a protected sector »Balance of payments considerations »Support for indigenous providers of services l Arguments pro protection »Indigenous firms are too weak »Abrupt liberalisation would eliminate domestic firms l Arguments against protection »Transfer of skills »More competition,better quality of service 2-21