1. 5
The United States and the Global Economy

2. Chapter Objectives Key Facts About U.S. International Trade
Comparative Advantage, Specialization, and International Trade
How Exchange Rates are Determined in Currency Markets
How and Why Government Sometimes Interferes with Free International Trade
Role Played by Free-Trade Zones and the WTO in Promoting International Trade

3. International Linkages
United
States
Economy
Trade Flows
Other
National
Economies
Goods & Services
Resource Flows
Capital & Labor
Information &
Technology Flows
Information & Technology
Financial Flows
Money

4. United States and World Trade
Volume and Pattern
Volume
Dependence
Trade Patterns
Financial Linkages

5. United States and World Trade
Volume and Pattern
Exports of Goods & Services – 2005
Selected Countries as a Percent of GDP
Belgium
Netherlands
South Korea
Germany
Canada
New Zealand
Italy
France
United Kingdom
Spain
Japan
United States
11%
87%
71%
44%
40%
38%
28%
27%
26%
25%
13%
Source: IMF, International Financial Statistics, 2005

6. United States and World Trade
Volume and Pattern
U.S. Trade as a Percentage of GDP
Inflation Adjusted to Dollar Value in 2000
Exports
Percentage of GDP
Imports
Source: Bureau of Economic Analysis

7. United States and World Trade
Volume and Pattern
Principal U.S. Exports & Imports – 2005
in Billions of Dollars
Exports
Imports
Chemicals
Consumer Durables
Agricultural Products
Semiconductors
Computers
Generating Equipment
Automobiles
Aircraft
Medical
Telecommunications
$68.6
53.5
52.9
47.2
45.5
33.2
30.4
29.1
27.6
25.6
Petroleum
Automobiles
Household Appliances
Computers
Metals
Clothing
Consumer Electronics
Generating Equipment
Semiconductors
Telecommunications
$251.6
123.7
97.1
93.3
83.8
79.1
47.3
43.1
37.1
25.8
Source: Department of Commerce Data

8. United States and World Trade
Volume and Pattern
U.S. Exports & Imports – 2005
in Goods by Area
Value
Billions
Of Dollars
Value
Billions
Of Dollars
Exports to
Imports from
Industrial Countries
Developing Countries
Total
$483
Industrial Countries
Developing Countries
Total
$770
410
904
$893
$1,674
Imports Exceed Exports by $781 Billion
That’s over 15,620,000 jobs at $50,000 each!
Was $484 Billion in 2002 & $346 Billion in 1999
Source: Survey of Current Business, April 2006

9. United States and World Trade
Rapid Trade Growth
Transportation Technology
Communications Technology
General Decline in Tariffs
Multinational Corporations

10. United States and World Trade
Participants in International Trade
GLOBAL PERSPECTIVE
Comparative Exports
Germany
United States
China
Japan
France
Netherlands
Italy
United Kingdom
Canada
Belgium
South Korea
Mexico
Russia
Taiwan
Singapore
$912
$819
$593
$566
$449
$358
$349
$347
Billions of Dollars
$317
$307
$254
$189
$184
$183
$180
Source: World Trade Organization

11. Specialization and Comparative Advantage
Absolute Advantage
Comparative Advantage
Comparative Costs
Specialization and Trade
Terms of Trade
O 5.1
W 5.1

12. The Foreign Exchange Market
GLOBAL PERSPECTIVE
Exchange Rates
Foreign Currency Per U.S. Dollar
$1 Will Buy
March 2006
44.3 Indian rupees
.57 British pounds
1.16 Canadian dollars
10.7 Mexican pesos
1.31 Swiss francs
.83 European euros
117 Japanese yen
975 South Korean won
7.8 Swedish kronors

13. The Foreign Exchange Market
Exchange Rates
G 5.1
Dollar – Yen Market P Sy
Exchange Rate:
$.01=¥1
.01
Dollar price of 1 yen Dy Qe Q
Quantity of yen

14. The Foreign Exchange Market
Exchange Rates
Changing Rates:
Depreciation and Appreciation
International
Value of Dollar
Falls (Dollar
Depreciates)
Dollar Price of
Foreign
Currency
Rises
Equals
Equals
Equals
Foreign
Currency Price
Of Dollar
Falls
International
Value of Foreign
Currency Rises
(Foreign Currency
Appreciates)
Equals

15. Trade Impediments and Subsidies Protective Tariffs Import Quotas
Government and Trade
Trade Impediments and Subsidies
Protective Tariffs
Import Quotas
Nontariff Barriers
Export Subsidies

16. Government and Trade
Why Government Trade Interventions?
Misunderstanding the Gains from Trade
Political Considerations
Costs to Society

17. Government and Trade Trade War Smoot-Hawley Tariff Act of 1930
Multilateral Trade Agreements
And Free-Trade Zones
Trade War
Smoot-Hawley Tariff Act of 1930
Reciprocal Trade Agreements Act of 1934
Negotiating Authority
Generalized Reductions
Most-Favored-Nation Clauses

18. Government and Trade General Agreement on Tariffs and Trade (GATT)
Multilateral Trade Agreements
And Free-Trade Zones
General Agreement on Tariffs and Trade (GATT)
Equal Trade Treatment
Reduction in Tariffs
Elimination of Import Quotas
Uruguay Round

19. Government and Trade World Trade Organization (WTO)
Multilateral Trade Agreements
And Free-Trade Zones
World Trade Organization (WTO)
Doha Round (Doha, Qatar)
The European Union (EU)
EU Trade Bloc
The Euro

20. Government and Trade North American Free Trade Agreement (NAFTA)
Multilateral Trade Agreements
And Free-Trade Zones
North American Free Trade Agreement (NAFTA)
Canada, Mexico, and U.S.
Fears and Accomplishments
Job Creation
Higher Standard of Living

21. Government and Trade Global Competition
GLOBAL PERSPECTIVE
Global Competition
Top 12 Globalized Nations
1-Singapore
2-Ireland
3-Switzerland
4-United States
5-Netherlands
6-Canada
7-Denmark
8-Sweden
9-Austria
10-Finland
11-New Zealand
12-United Kingdom
Source: A. T. Kearney, Foreign Policy

22. Petition of the Candlemakers
Last
Word
Problems with Protectionism
Satire on Candlemakers 1845
Sought to Remove Competition from Trade on Light Sources
The Sun is also a Light Source
Close Out All Natural Light to Increase Demand for Candles and Raw Materials to Make Them
Taken to Extreme, There is No Way to Remove Competition

23. Key Terms multinational corporations comparative advantage
terms of trade
foreign exchange market
exchange rates
depreciation
appreciation
protective tariffs
import quotas
nontariff barriers
export subsidies
Smoot-Hawley Tariff Act
Reciprocal Trade Agreements Act
most-favored-nation clauses
General Agreement on Tariffs and Trade (GATT)
World Trade Organization (WTO)
Doha Round
European Union (EU)
trade bloc
euro
North American Free Trade Agreement (NAFTA)

24. Measuring Domestic Output and National Income
Next Chapter Preview…
Measuring Domestic Output and National Income
Chapter 6!!!