macroeconomic mcgrowhill micro ch 23 19e use this one

Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms End Show 23-1 23 International Trade Copyright 2008 The McGraw-Hill Companies Chapter Objectives Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms End Show 23-2 • The Graphical Model of Comparative Advantage, Specialization, and the Gains From Trade • How Differences Between World Prices and Domestic Prices Prompt Exports and Imports • How Economists Analyze the Economic Effects of Tariffs and Quotas • The Rebuttals to the Most Frequently Presented Arguments for Protectionism • About the Assistance Provided Workers Under the Trade Adjustment Act of 2002 • How the Offshoring of U.S Jobs Relates to the Growing International Trade in Services Copyright 2008 The McGraw-Hill Companies Some Key Trade Facts • U.S trade deficit in goods • $517 billion in 2009 • U.S trade surplus in services • $138 billion in 2009 • Canada largest U.S trade partner • Trade deficit with China • $220 billion in 2009 • Exports are 13% U.S output • Dependence on oil LO1 23-3 Some Key Facts Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms • U.S Sizable Trade Deficit with China • U.S Dependence on Oil is Reflected • U.S has World’s Highest Trading Volume (Exports and Imports) • China a Major Trade Force • International Trade Links World Economies • International Trade is the Center of Policy Debates End Show 23-4 Copyright 2008 The McGraw-Hill Companies Some Key Trade Facts • Principal U.S exports include: • Chemicals • Agricultural products • Consumer durables • Semiconductors • Aircraft • U.S provides about 8.5% of world’s exports LO1 23-5 Some Key Trade Facts LO1 23-6 Some Key Facts Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms Shares of World Exports, Selected Nations GLOBAL PERSPECTIVE Percentage Share of World Exports, 2004 Germany United States China Japan France Netherlands Italy United Kingdom 10 10.0 8.9 6.5 6.2 4.9 3.9 3.8 3.8 End Show Source: World Trade Organization 23-7 Copyright 2008 The McGraw-Hill Companies 12 Some Key Trade Facts LO1 23-8 Economic Basis for Trade • Nations have different resource • • • LO2 endowments Labor-intensive goods Land-intensive goods Capital-intensive goods 23-9 Comparative Advantage • Assumptions • Two nations • Same size labor force • Constant costs in each country • Different costs between countries • U.S absolute advantage in both • Opportunity cost ratio • Slope of the curve • Wheat sacrificed per ton of Coffee LO2 23-10 • • • • • LO4 Trade Barriers and Export Subsidies Tariffs • Revenue tariff • Protective tariff Import quota Nontariff barrier (NTB) Voluntary export restriction (VER) Export subsidy 23-20 Economic Impact of Tariffs • Direct effects • Decline in consumption • Increase in domestic production • Decline in imports • Tariff revenue • Indirect effects LO4 23-21 Economic Impact of Quotas • Decline in consumption • Increase in domestic production • Decline in imports • Quotas not provide for any government revenue but instead transfer it to foreign producers LO4 23-22 Trade Barriers Trade Adjust ment Assista nce Last Word Sd Sd + Q Price Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Economic Effects of a Protective Tariff or an Import Quota Pd Pt Pw Dd Key Terms End Show a b Q c d Quantity 23-23 Copyright 2008 The McGraw-Hill Companies Consider Tariff Impact Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms • Example of tariff gone awry: Water Intensive California Rice (shortage of water and uncertain future of meeting water needs) “The U.S government supports domestic rice production through tariffs on imported rice and direct taxpayer subsidies based on production, prices, and historical acreage” End Show 23-24 Copyright 2008 The McGraw-Hill Companies Trade Barriers • The Case for Protection: A Critical Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word 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 Key Terms • Smoot-Hawley Tariff Act End Show – Cheap Foreign Labor Argument 23-25 Copyright 2008 The McGraw-Hill Companies Economic Impact of Quotas • Decline in consumption • Increase in domestic production • Decline in imports • Quotas not provide for any government revenue but instead transfer it to foreign producers LO4 23-26 Multilateral Trade Agreements • General Agreement on Tariffs and • • • LO5 Trade (GATT) World Trade Organization (WTO) European Union (EU) North American Free Trade Agreement (NAFTA) 23-27 GATT • Three principles: • Equal, nondiscriminatory trade between member nations • Reduction in tariffs • Elimination of import quotas LO5 23-28 WTO • Established by Uruguay Round of • • • LO5 GATT 153 member nations in 2010 Oversees trade agreements and rules on disputes Critics argue that it may allow nations to circumvent environmental and worker-protection laws 23-29 European Union • Initiated in 1958 as Common Market • Abolished tariffs and import quotas • • LO5 between member nations Established common tariff with nations outside the EU Created Euro Zone with one currency 23-30 NAFTA • Agreement between U.S., Canada, • • • LO5 and Mexico Established a free trade zone between the countries Trade has increased in all countries Enhanced standard of living 23-31 Trade Adjustment and Offshoring • Trade Adjustment Assistance Act • Designed to help individuals hurt by • LO5 international trade Offshoring of jobs • Shifting of work previously done by American workers to workers abroad 23-32 Petition of the Candlemakers • Petition of candlemakers asking for • LO5 protection from natural light producers such as the sun Tongue-in-cheek argument supporting the idea of free trade 23-33 Key Terms Some Key Fa cts The Economic Basis for T rade Supply and D emand Analys is of Export s and Import s Trade Barrier Trade Adjust ment Assista nce Last Word Key Terms • • • • • • • • • • • • • • labor-intensive goods land-intensive goods capital-intensive goods opportunity-cost ratio principle of comparativ e advantage terms of trade trading possibilities line gains from trade world price domestic price export supply curve import demand curve equilibrium world price tariffs End Show 23-34 Copyright 2008 The McGraw-Hill Companies • • • • • • • • • • • • revenue tariff protective tariff import quota nontariff barrier (NTB) voluntary export restriction (VER) strategic trade policy dumping Smoot-Hawley Tariff Act Trade Adjustment Assistance Act offshoring World Trade Organization (WTO Doha Round ... with nations outside the EU Created Euro Zone with one currency 23- 30 NAFTA • Agreement between U.S., Canada, • • • LO5 and Mexico Established a free trade zone between the countries Trade has increased... Key Terms • U.S Sizable Trade Deficit with China • U.S Dependence on Oil is Reflected • U.S has World’s Highest Trading Volume (Exports and Imports) • China a Major Trade Force • International... Trade is the Center of Policy Debates End Show 23- 4 Copyright 2008 The McGraw-Hill Companies Some Key Trade Facts • Principal U.S exports include: • Chemicals • Agricultural products • Consumer