2. International Trade Dr. David J. Molina Economics 4850/5850

3. Int’l Boundaries Affect Trade n Exchange Rates Differ n Commercial Policy Differs n Domestic Economic Policies Differ n The Extent of Markets Differs n Marketing Considerations

4. What is International Trade? n International Trade is the study of the economic transactions that take place between countries, as well as the study of the impediments (natural and political) to those transactions. n We will be concerned with “real” issues: to study capital flows, balance of payments issues, ex. rates, etc. take Int’l Finance

5. The Fundamental Questions of International Trade n Who gains and who loses from trade? n What determines the pattern of trade? n What are the barriers to trade?

6. Growth and Composition of Trade n The volume and value of world exports have grown tremendously

7. Growth In Volume of World Goods Production and Trade 1963-2003 1963-2003 (Average Annual Percentage Change in Volume) Production63-7370-7980-8585-9090-9895-002003 All Commodities 6.0%4.0%1.7%3.0%2.0%4.0%1.0% Agriculture2.52.02.91.92.02.50.5 Mining5.52.5-2.73.02.02.00.5 Manufacturing7.54.52.33.22.04.01.0 Exports 9.0%5.0%2.1%3.8%6.5%7.0%3.0% Agriculture144.51.02.24.03.52.5 Mining7.51.5-2.74.85.54.00.5 Manufacturing11.57.04.57.07.08.03.0 Several Sources, Table 1 in Chapter 1 of Text

8. Growth and Composition of Trade n The volume and value of world exports have grown tremendously n Manufacturing exports have increased dramatically in the past two decades to where it now makes up more than 75% of the Commodity exports. The difference split between agriculture and mining

9. Commodity Composition of World Exports Percent and Billion Dollar value for 2002 Product Category 198019881992199820022002 Agriculture 14.7%13.5%12.0%10.5%9.3%$583 Mining 27.7%12.8%12.0%9.5%12.5%$788 Manufacturing 53.9%70.2%73.3%76.1%75.1%$4.708 Source: Table 6 in your Text and WTO

10. Growth and Composition of Trade n Manufacturing exports have increased dramatically in the past two decades to where it now makes up more than 75% of the Commodity exports. The difference split between agriculture and mining n Services is also growing rapidly and changing in composition (Source WTO)

11. World Export of Commercial Services by Category 1990, 2000, and 2004 (percent) Source WTO Chapter 4 of World Trade Statistics

12. Geographical Composition of Trade n Many non-industrial countries are increasing in their participation of world trade

14. Geographical Composition of Trade n Industrialized countries dominate global exporting and importing (although that share is declining) n The EU is the most important origin and destination of traded goods

16. Geographical Composition of Trade n Industrialized countries dominate global exporting and importing (although that share is declining) n The EU is the most important origin and destination of traded goods n The economically powerful regions tend to export to themselves

18. Geographical Composition of Trade n Industrialized countries dominate global exporting and importing (although that share is declining) n The EU is the most important origin and destination of traded goods n The economically powerful regions tend to export to themselves n The big players are the Germany, U.S., Japan, China, U.K., and France

22. Trade and the U.S. n The U.S. is an economic giant among nations n The U.S. is a relatively “closed” economy

24. Geographical Composition of U.S. Trade: Destination of U.S. Exports n NAFTA countries are the biggest recipients of our exports; that share has increased over time. n Western Europe, Japan, and NICs are very important recipients of our exports, but their share has decreased recently.

26. Geographical Composition of U.S. Trade: Sources of U.S. Imports n NAFTA countries are the source of our imports; that share has increased over time. n Western Europe, Japan, and NICs are very important sources of our imports, but their share has decreased recently.

28. Commodity Composition of U.S. Merchandise Exports n The U.S. tends to export capital goods and industrial supplies n Capital goods and automotive exports have become more important over time. n Agricultural products have diminished in importance

30. Commodity Composition of U.S. Merchandise Imports n The U.S. tends to import consumer goods and capital goods. n Capital goods and consumer goods have taken up a larger share of imports over time. n Petroleum products have diminished as a share of imports since the 1980s; this will not likely continue to be the case.

32. US Position in World Trade in 1999 (percent and ranking) Merchandise ExportShare(Rank)ImportShare(Rank) Rank 1 share Agriculture12.1(1)11.3(1) Manufactured goods 13.7(1)19.3(1) Iron and Steel 4.3(7)11.9(1) Japan 10.7 Chemicals13.7(1)11.7(1) Machinery & transport equipment 16.3(1)22.3(1) Automobile Products 11.5(3)27.5(1) Germany 17.0 Textiles6.4(6)9.2(1) China 8.8 Transportation Services 15.6(1)15.0(1) Travel Services 19.7(1)15.1(1) Other Commercial Services 19.1(1)11.2(1) Source: WTO International Statistics 2000

33. Trade in Services n Over $1.7 trillion annually (2003) n About 20% of total trade (closer to 30% for U.S.)

35. Trade in Services n Over $1.7 trillion annually (2003) n About 20% of total trade n Most exporters and importers of services are industrial countries

38. Geographical Composition of U.S. Trade n In 1999, 36.3% of exports and 29.5% of imports go to or are received from NAFTA

39. International Trade Regional Impact n Different Regions in the Country can be impacted differently from trade n This has the potential of having income effects in the different regions - among other problems

42. One Last Point n While the US remains the largest country in terms of International Trade n As a Economic Unit the European Union is a more powerful group

43. Merchandise Trade Share of the U.S.and the E.U. (percent) Exports 1980198519901995199819992000 European Union 52.444.847.242.542.842.739.6 United States 10.516.617.016.717.918.419.3 Imports 1980198519901995199819992000 European Union 43.137.243.041.442.542.139.7 United States 7.2814.412.110.912.813.114.2 Source: WTO International Trade Statistics, 2000