Chapter 8 - The export-import sector. In this chapter, students will be able to understand: The basis for international trade, U. S. imports and exports, a summing up: C + I + G + Xn, the world’s leading trading nations, world trade agreements and free-trade, zones.
Chapter 8 The ExportImport Sector Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 81 Chapter Objectives • • • • • The basis for international trade U. S. imports and exports A summing up: C + I + G + Xn The world’s leading trading nations World trade agreements and freetrade zones Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 82 The Basis for International Trade • The basis for international trade is that a nation can import a particular good or service at a lower cost than if it were produced domestically – In other words, if you can buy it cheaper than you can make it you buy it – This maxim is true for individuals and nations Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 83 Merchandise Imports and Exports as Percentage of Goods Produced in the United States, 19902000 Since 1990 our imports and exports as a percentage of goods produced in the United States has grown steadily. More than onequarter of all the goods produced here are shipped abroad, while our imports are equal to about onethird of the goods we produce in the United States Imports Exports 1990 1992 Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 1994 1996 1998 2000 84 Sum of U.S. Imports and Exports as Percentage of GDP, 19702000 Between 1970 and 2000 the foreign trade sector nearly tripled as a percentage of GDP 1970 72 74 76 78 80 82 Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 84 86 88 90 92 94 96 98 2000 85 U.S. Balance of Trade in Goods, Services, and Overall Balance, 19702000 (in billions of dollars) Balance on services Since the late 1980s, we have been running a large and growing balance on services. Our balance on goods, which has been negative since the mid1970s, has grown steadily worse since 1991 and now totals more than $300 billion Overall balance on goods and services Balance on goods 1970 1975 1980 Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 1985 1990 1995 2000 86 A Summing Up: C + I + G + Xn Net exports = Xn Xn = Exports Imports Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 87 C + I + G + Xn 10,000 10,000 C+I+G 8,000 C+I+G 8,000 6,000 6,000 4,000 4,000 2,000 2,000 C + I + G + Xn 45û 45û 2,000 4,000 6,000 8,000 Disposable income ($) 10,000 2,000 4,000 6,000 8,000 Disposable income ($) 10,000 Why is the C + I + G + Xn line lower than the C + I + G line? Answer: It is lower because net exports (Xn) are negative Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 88 Exports of Goods & Services as Percent age of GDP, Selected Countries, 1999 Netherlands 60.6 Canada 43.7 Sweden 43.7 Switzerland 41.2 Denmark 36.8 Germany France 26.1 United Kingdom 25.8 Italy 25.5 U.S 29.5 10.7 10 20 30 40 50 Percentage of GDP Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 60 70 89 The World’s Top Ten Exporting Nations, 1999 United States 683 Germany 520 Japan 388 Canada 358 China 214 South Korea Mexico 133 118 Taiwan 110 Singapore 110 Switzerland 79 100 200 300 400 500 600 700 (billions of dollars) Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 810 World Trade Agreements • The General Agreement on Trade and Tariffs (GATT) was drafted in 1947 and has since been signed by more than 135 nations • The latest version was ratified by Congress in 1994 – GATT will • Reduce tariffs by an average of 40% • Lower other barriers to trade such as quotas on certain products • Provide patent protection for American software, pharmaceuticals, and other industries Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 818 World Trade Agreements • Will GATT help or hurt the United States? – Although some industries will be affected adversely, the positive appears to outweigh the negative • On average, foreign countries have more trade restrictions and tariffs on U. S. goods than we have on theirs • GATT should help the U. S. more than it hurts Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 819 World Trade Agreements • Will GATT help or hurt the United States? – GATT will, for the first time protect intellectual property rights like patents, trademarks, and copyrights – GATT will also open markets for service industries such as accounting, advertising, computer services, and engineering • These are fields in which Americans excel Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 820 World Trade Agreements • Will GATT help or hurt the United States? – GATT brings agriculture under international trade rules for the first time • European farm subsidies dwarf those paid to American farmers • Proportionally, the Europeans will will have to reduce their subsidies a lot more than the United States, making American crop exports even more competitive Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 821 The World Trade Organization (WTO) • The WTO was set up in 1995 as a successor to GATT • The WTO is based on three major principles – Liberalization of trade – Nondiscrimination [the mostfavorednation principle] – No unfair encouragement of exports Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 822 Liberalization of Trade • Trade barriers, which were reduced under GATT, should continue to be reduced under the WTO – Trade barriers have been falling within free trade zones such as NAFTA and the European Union Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 823 Nondiscrimination The MostFavoredNation Principle • Under the mostfavorednation principle, members of WTO must offer all its members the same trade concessions as any given member – This is a lot like when the teacher says that if you bring candy to class, you must bring some for everyone Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 824 No Unfair Encouragement of Exports • No unfair encouragement of exports encompasses export subsidies, which are considered a form of unfair competition Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 825 The WTO Dispute Settlement Body • The WTO has a Dispute Settlement Body to handle disagreements among member nations – Many politicians in the United States have very reluctantly accepted the jurisdiction of the WTO • The United States has won almost all the more than two dozen cases in which the U. S. was the complaining party Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 826 The Seattle Protest • The WTO held a meeting in Seattle in late 1999 – Tens of thousands of protesters descended on the city • Prominent among them were labor unions, environmentalists, and human rights advocates Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 827 The Seattle Protest • BusinessWeek outlined the reasons for the protests – Environmentalists argue that elitist trade and economics bodies make undemocratic decisions that undermine national sovereignty on environmental regulation – Unions charge that unfettered trade allows unfair competition from countries that lack labor standards Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 828 The Seattle Protest • BusinessWeek outlined the reasons for the protests – Human rights and student groups say the IMF and the World Bank prop up regimes that condone sweatshops and pursue policies that bail out foreign lenders at the expense of local economies Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 829 Summary • The debate is not about “free trade” but about “fair trade” – Many Americans, as well as citizens of other leading industrial nations, have strong reservations about ceding their national sovereignty to international organizations • Especially the WTO Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 830 Summary • The debate is not about “free trade” but about “fair trade” – Much concern centers on the possible loss of jobs and the reduction of wages in their countries if their workers were forced to compete with lowwage workers in the poorer countries • Many earn just one or two dollars a day Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 831 Summary • The debate is not about “free trade” but about “fair trade” – Is it fair to make American factories, which uphold relatively high environmental standards, compete with Third World factories that are not similarly burdened? – If the United States and other industrial countries are subject to the rules and regulations of the WTO, their own governments would be unable to prevent a flood of cheap imports Copyright 2002 by The McGrawHill Companies, Inc. All rights reserved 832 ... 2002 by The McGrawHill Companies, Inc. All rights reserved 84 86 88 90 92 94 96 98 2000 8 5 U.S. Balance of Trade in Goods, Services, and Overall Balance, 19702000 (in billions of dollars) Balance on services Since the late 1 980 s, we have been running a ... 19 98 2000 8 4 Sum of U.S. Imports and Exports as Percentage of GDP, 19702000 Between 1970 and 2000 the foreign trade sector nearly tripled as a percentage of GDP 1970 72 74 76 78 80 82 ... 2002 by The McGrawHill Companies, Inc. All rights reserved 8 7 C + I + G + Xn 10,000 10,000 C+I+G 8, 000 C+I+G 8, 000 6,000 6,000 4,000 4,000 2,000 2,000 C + I + G + Xn 45û 45û 2,000 4,000 6,000 8, 000 Disposable income ($) 10,000 2,000 4,000 6,000 8, 000