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Class6 Class6 Presentation Transcript

  • Economics for Journalists Week 6: Trade Jeffrey TimmermansMonday, 27 February, 12
  • Absolute advantage “The producer that requires a smaller quantity of inputs to produce a good is said to have an absolute advantage in producing that good.” – N. Gregory Mankiw, Principles of EconomicsMonday, 27 February, 12
  • Comparative advantage “The producer who gives up less of other goods to produce [a particular good] has the smaller opportunity cost of producing [that particular good] and is said to have a comparative advantage in producing it.” – N. Gregory Mankiw, Principles of EconomicsMonday, 27 February, 12
  • What do these countries have in common? ✤ China ✤ India ✤ Morocco ✤ Turkey ✤ Sri Lanka ✤ Bangladesh ✤ Colombia ✤ Cambodia ✤ Lesotho ✤ MexicoMonday, 27 February, 12
  • And the answer is.... ✤ All ten countries supply clothing to U.S. discount clothing retailer Old Navy ✤ Old Navy sources its products from around 50 countries Photo: Boone NC Magazine ✤ Men’s T-shirt for US$3.99 ✤ Old Navy sold US$1.62 billion in merchandise in 4Q 2011 Sources: Gap Inc. 10-Q filing, Old Navy Web siteMonday, 27 February, 12
  • Volume of monthly exports, 1998-2009 Source: WTO secretariatMonday, 27 February, 12
  • Effects of trade on an exporting country Domestic Price of Supply Textiles Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an exporting country Domestic Price of Supply Textiles Consumer Surplus Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an exporting country Domestic Price of Supply Textiles Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an exporting country Domestic Price of Supply Textiles Exports Price after Trade Price before Trade { World Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an exporting country Domestic Price of Supply Textiles Exports Price after Trade Price before Trade { World Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an importing country Domestic Price of Supply Textiles Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an importing country Domestic Price of Supply Textiles Consumer Surplus Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an importing country Domestic Price of Supply Textiles Price before Trade Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an importing country Domestic Price of Supply Textiles Price before Trade World Price after Trade { Imports Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of trade on an importing country Domestic Price of Supply Textiles Consumer Surplus Price before Trade World Price after Trade { Imports Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Free trade: winners ✤ Domestic consumers in importing countries ✤ Domestic producers in exporting countriesMonday, 27 February, 12
  • Free trade: losers ✤ Domestic consumers in exporting countries ✤ Domestic producers in importing countriesMonday, 27 February, 12
  • Other benefits of trade ✤ Overall economic well-being increases ✤ But not for everyone ✤ Variety of available goods increases ✤ Increased competition ✤ Enhanced flow of ideasMonday, 27 February, 12
  • Arguments against trade ✤ Eliminates jobs ✤ Endangers national security ✤ Harms developing industries ✤ Unfair competition (dumping)Monday, 27 February, 12
  • “Buy American” Source: CNN CNN’s Lou Dobbs on “Buy American”Monday, 27 February, 12
  • Government trade policies ✤ Trade barriers ✤ Trade subsidies ✤ Free-trade agreementsMonday, 27 February, 12
  • Trade barriers: the obvious ones ✤ Tariffs ✤ Licenses ✤ Quotas ✤ Subsidies ✤ Content requirements ✤ EmbargoMonday, 27 February, 12
  • Trade subsidies ✤ The U.S. paid domestic farmers $245.2 billion in subsidies from 1995-2009, including $15.4 billion in 2009 ✤ 10% of farmers received 74% of subsidies ✤ Corn subsidies totaled $73.8 billion (1995-2009) ✤ The E.U.’s Common Agricultural Policy costs €55 billion per year, or around 40% of the total E.U. budget Sources: Environmental Working Group, European UnionMonday, 27 February, 12
  • Trade barriers: the less obvious ✤ “Quality” requirements ✤ Health concerns ✤ Packaging ✤ Labeling ✤ Other product standards ✤ Dense bureaucracyMonday, 27 February, 12
  • Effects of a tariff Domestic Price of Supply Textiles Consumer Price without Surplus Trade World Price } Producer Surplus Domestic Imports Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of a tariff Domestic Price of Supply Textiles Price without Trade World Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of a tariff Domestic Price of Supply Textiles Price without Trade Price after Tariff { Imports Tariff World Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of a tariff Domestic Price of Supply Textiles Consumer Surplus Price without Trade Price after Tariff { Imports Tariff World Price Domestic Demand Quantity of TextilesMonday, 27 February, 12
  • Effects of a tariff Domestic Price of Supply Textiles Consumer Surplus Price without Trade Price after Tariff { Imports Tariff World Price Domestic Demand Producer Quantity of Surplus TextilesMonday, 27 February, 12
  • Trade: a zero-sum game ✤ One country’s trade surplus is another country’s trade deficit ✤ If China exports a T-shirt to the U.S., the value of that T-shirt is counted as a credit (addition) to China’s trade balance and as a debit (subtraction) to the U.S. trade balanceMonday, 27 February, 12
  • Balance of Payments ✤ While GDP reports a country’s output of goods & services, a Balance of Payments (BOP) statement records a country’s cross-border transactions, both current account transactions and capital transactions ✤ The two sides of a BOP statement must always balance ✤ A deficit in the current account must be matched by an equivalent surplus in the capital account ✤ In other words, a country that runs a $1 billion current account deficit must finance it by attracting $1 billion in capitalMonday, 27 February, 12
  • Structure of a BOP statement ✤ Current Account ✤ Balance on trade in goods (Exports - Imports) ✤ Balance on trade in services ✤ Net income & net unilateral transfers ✤ Capital & Financial Account ✤ Errors & OmissionsMonday, 27 February, 12
  • BOP: Current Account ✤ Debits (subtractions) ✤ Credits (additions) ✤ Imports ✤ Exports ✤ Income payments ✤ Income receipts ✤ Increase in reserves ✤ Decrease in reserves ✤ All are uses of foreign ✤ All are sources of foreign exchange exchangeMonday, 27 February, 12
  • Bureau of Economic Analysis U.S. International Transactions Accounts Data Table Creation Date: December 15, 2009 Release Date: December 16, 2009 Table 1. U.S. International Transactions [Millions of dollars] (Credits +; debits -)/1/ 2008 2008 Current account Exports of goods and services and income receipts 2591233 Imports of goods and services and income payments -3168938 Exports of goods and services 1826596 Imports of goods and services -2522532 Goods, balance of payments basis/2/ 1276994 Goods, balance of payments basis/2/ -2117245 Services/3/ 549602 Services/3/ -405287 Transfers under U.S. military agency sales contracts/4/ 22571 Direct defense expenditures -36452 Travel 110090 Travel -79743 Passenger fares 31623 Passenger fares -32597 Other transportation 58945 Other transportation -72143 Royalties and license fees/5/ 91599 Royalties and license fees/5/ -26616 Other private services/5/ 233529 Other private services/5/ -153267 U.S. government miscellaneous services 1245 U.S. government miscellaneous services -4469 Income receipts 764637 Income payments -646406 Income receipts on U.S.-owned assets abroad 761593 Income payments on foreign-owned assets in the United States -636043 Direct investment receipts 370747 Direct investment payments -120862 Other private receipts 385940 Other private payments -349871 U.S. government receipts 4906 U.S. government payments -165310 Compensation of employees 3044 Compensation of employees -10364 Unilateral current transfers, net -128363 U.S. government grants/4/ -36003 U.S. government pensions and other transfers -8390 Private remittances and other transfers/6/ -83970 Memoranda: Balance on goods (lines 3 and 20) -36485 Balance on services (lines 4 and 21) 12329 Balance on goods and services (lines 2 and 19) -24156 Balance on income (lines 12 and 29) 35164 Unilateral current transfers, net (line 35) -16544 Balance on current account (lines 1, 18, and 35 or -5536 lines 74, 75, and 76)/13/ Source: U.S. Bureau of Economic AnalysisMonday, 27 February, 12
  • BOP: Capital & Financial Account ✤ Shows how a country’s assets and liabilities change over time ✤ Remember that the figures in the capital account represent changes (increases or decreases) in assets & liabilities, not the absolute amounts!Monday, 27 February, 12
  • 2008 Capital account Capital account transactions, net 953 Financial account U.S.-owned assets abroad, excluding financial derivatives (increase/financial outflow (-)) -106 U.S. official reserve assets -4848 Gold/7/ 0 Special drawing rights -106 Reserve position in the International Monetary Fund -3473 Foreign currencies -1269 U.S. government assets, other than official reserve assets -529615 U.S. credits and other long-term assets -2202 Repayments on U.S. credits and other long-term assets/8/ 2354 U.S. foreign currency holdings and U.S. short-term assets -529766 U.S. private assets 534357 Direct investment -332012 Foreign securities 60761 U.S. claims on unaffiliated foreigners reported by U.S. nonbanking concerns 372229 U.S. claims reported by U.S. banks and securities brokers/14/ 433379 Foreign-owned assets in the United States, excluding financial derivatives (increase/financial inflow (+)) 534071 Foreign official assets in the United States 487021 U.S. government securities 543498 U.S. Treasury securities/9/ 477652 Other/10/ 65846 Other U.S. government liabilities/11/ 8626 U.S. liabilities reported by U.S. banks and securities brokers -153443 Other foreign official assets/12/ 88340 Other foreign assets in the United States 47050 Direct investment 319737 U.S. Treasury securities 196619 U.S. securities other than U.S. Treasury securities -126737 U.S. currency 29187 U.S. liabilities to unaffiliated foreigners reported by U.S. nonbanking concerns -45167 U.S. liabilities reported by U.S. banks and securities brokers/15/ -326589 Financial derivatives, net -28905 Statistical discrepancy (sum of above items with sign reversed) 200055Monday, 27 February, 12
  • Monday, 27 February, 12