INTERNATIONAL TRADE LECTURE 1: The World of International Economics

Contents To make a brief introduction of international economics To research the nature of merchandise trade including geographical composition and the commodity composition of trade To realize the increasing importance of service transaction To understand the changing degree of economic interdependence

International Economics The world is getting smaller every day  What does it mean?  What proof it? Any sign? International trade is very important  Ancient times  Nowadays

International Economics The development of international trade and its attribute to early economic thinking  Increase the well-being of nation  Differences between inside transaction and foreign trade

International Economics The contents of international economics study  Concern: allocate limited resources to meet desired economic objectives  How to influence social welfare, income distribution, employment, growth, and price stability and so on…

The Nature of Merchandise Trade The geographical composition of trade  Table 1 Composition Time tendency and reason Conclusion: exports outgrown production which means countries are becoming more interdependent

The Nature of Merchandise Trade  Table 2 Focus on North America, Europe, and Asia Reason of different performance Conclusion: the industrialized countries dominate world trade and new economies have become increasingly important.

The Nature of Merchandise Trade  Table 3 Category 1: North America, Europe, Asia Category 2: South and Central America, CIS Category 3: Africa and Middle East Conclusion: the major markets for all regions’ exports are in North America, Europe, and Asia

The Nature of Merchandise Trade  Table data 2008 data:  Exports: Germany 1327, China 1218, United States  Imports: USA, Germany, China, Japan, France, UK 2010 data:  Exports: China , United States , Germany , Japan, Netherland, France, South Korea, Italy, Belgium, Russia  Imports: USA, China, Germany, Japan France, UK, Netherland, Italy, Hong Kong, South Korea Nature conditions, technology conditions, education, law, and political conditions differences Conclusion: world trade tends to be concentrated among relatively few major traders

The Nature of Merchandise Trade The commodity composition of trade  Table 5 Primary goods: food, beverage, fuel, mining, grease Manufactures Conclusion: increasing importance of manufactures trade and declining importance of primary goods

The Nature of Merchandise Trade Example: U.S. International Trade  Geographical: Canada, Mexico, China, Japan  Commodity: Exports: capital goods, industrial supplies and materials Imports: industrial supplies and material, consumer goods, capital goods

The Nature of Merchandise Trade Example: China  Geographical 2005: E.U, U.S.A, Japan, Hong Kong, ASEAN, Korea, Taiwan, Russia, Australia, Canada (81.5%) 2006: E.U, U.S.A, Japan, Hong Kong, ASEAN, Korea, Taiwan, Russia, Australia, India (79.7% ) 2007: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan, Russia, Australia, India (78.6%) 2008: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan, Australia, Russia, India (75.9%) 2009: E.U, U.S.A, Japan, ASEAN, Hong Kong, Taiwan, Korea, Australia, Russia, India 2010: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan, Australia, Brazil, India Australia, Brazil, Kazakhstani, ASEAN, Burma, Malaysia, Japan, Africa, Angola, Iran, Russia, South Korea, Vietnam, South Africa…

The Nature of Merchandise Trade  Tendency: First eight countries are China’s fundamental market in the future The rank will reflect political situation: Canada, India Hong Kong and Taiwan will keep stable and Taiwan may exceed Hong Kong in the future The proportion of top ten partner is slowly declining and ratio of Africa and Latin America will increased in the future Brazil has rapid development in trade and may squash in top ten partner Also, India and Russia have tremendous potential in the future

World Trade in Services Service category now accounts for the largest share of income and employment in many industrial countries  Including: wholesale and retail trade, restaurants and hotels, transport, storage, communications, financial services, insurance, real estate, business services, personal services, community services, social services, and government services  International trade in services: commercial services, investment income, and government services

World Trade in Services Commercial service is hard to estimate accurately  No agreed definition of what constitutes a traded service  No agreed ways to measure the service trade  Most service transactions are not observable

World Trade in Services Geographical nature of trade in services—in line with merchandise trade  Table data 2008 data  Exports: United States, U.K. Germany, France, China, Japan, Spain, Italy, India, Netherlands  Imports: United States, Germany, U.K. Japan, China, France, Italy, Spain, Ireland, Netherlands 2010 data  Exports: United States, Germany, U.K., China, France, Japan, Spain, Singapore, Netherlands, India  Imports: United States, Germany, China, U.K., Japan, France, India, Netherlands, Italy, Ireland Conclusion: concentrated on the industrial countries and emerging economies

Industrialization and urbanization in progress OECD GDP decomposition Agriculture28%11%2.6% Industry48%49%27% Service24%40%70% Population Rural81%57%23.3% Urban19%43%76.7%

World Trade in Services GATT and WTO  GATT: temporary institute  WTO: contemporary organization which independent to UN Object: to eliminate the tariff and other restrictions and develop a stable, fair, and free international trade Core: all agreement Fundamental principle: indiscriminate principle Including intellectual property, investment measure, and service transaction

The Changing Degree of Economic Interdependence Index of trade volume: international interdependence=(export + import) / GDP export – import = net export GDP = C + I + G + NX Table 9  Focus on Belgium, Netherlands, Czech Republic, and Nigeria.  Focus on Singapore International interdependence= (ex+im)/economic aggregate (GDP + foreign products)  Conclusion: increasing importance of international interdependence

Review To make a brief introduction of international economics To research the nature of merchandise trade including geographical composition and the commodity composition of trade To realize the increasing importance of service transaction To understand the changing degree of economic interdependence

Homework Research your own country’s trade data in last three years and in 1990, do a geographic and commodity composition analyze. Try to find trade tendency of your country and explain. Try to say something about consumption habits in your country.