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

3. 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

4. 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

5. Bina Nusantara University 5 Some Key Facts Germany United States China Japan France Netherlands Italy United Kingdom 0 2 4 6 8 10 12 10.0 8.9 6.5 6.2 4.9 3.9 3.8 Source: World Trade Organization Shares of World Exports, Selected Nations Percentage Share of World Exports, 2004

6. 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…

7. Bina Nusantara University 7 The Economic Basis for Trade Coffee (Tons) 30 25 20 15 10 5 0 35 40 51015202530 Wheat (Tons) Coffee (Tons) 30 25 20 15 10 5 0 35 40 5101520 Wheat (Tons) (a) United States(b) Brazil 12 18 8 4 A B

8. 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

9. Bina Nusantara University 9 The Economic Basis for Trade Coffee (Tons) 30 25 20 15 10 5 0 35 40 45 51015202530 Wheat (Tons) Coffee (Tons) 30 25 20 15 10 5 0 35 40 45 5101520 Wheat (Tons) (a) United States (b) Brazil 12 188 4 A B A’ B’ C C’ W c w w’ Trading Possibilities Line Trading Possibilities Line

10. 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

11. Bina Nusantara University 11 Supply and Demand Analysis of Exports and Imports Price (Per Pound; U.S. Dollars 1.50 1.25 1.00.75.50 0 5075100125150 Quantity of Aluminum (Millions of Pounds) 1.50 1.25 1.00.75.50 0 50100 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

12. Bina Nusantara University 12 Supply and Demand Analysis of Exports and Imports Price (Per Pound; U.S. Dollars 1.50 1.25 1.00.75.50 0 5075100125150 Quantity of Aluminum (Millions of Pounds) 1.50 1.25 1.00.75.50 0 50100 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

13. Bina Nusantara University 13 Supply and Demand Analysis of Exports and Imports 1.00.75.88 0 50100 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

14. 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

15. 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

16. 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

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