INTERNATIONAL TRADEPertemuan 25

Matakuliah : J0114-Teori EkonomiTahun : 2009

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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

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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

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Some Key Facts

GermanyUnited States

ChinaJapan

FranceNetherlands

ItalyUnited Kingdom

0 2 4 6 8 10 12

10.0

8.9

6.5

6.2

4.9

3.9

3.8

3.8

Source: World Trade Organization

Shares of World Exports, Selected Nations

Percentage Share of World Exports, 2004

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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…

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The Economic Basis for Trade

Co

ffe

e (T

on

s)

30

25

20

15

10

5

0

35

40

5 10 15 20 25 30Wheat (Tons)

Co

ffe

e (T

on

s)

30

25

20

15

10

5

0

35

40

5 10 15 20Wheat (Tons)

(a) United States (b) Brazil

12

18

8

4

A

B

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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

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The Economic Basis for TradeC

off

ee

(To

ns)

30

25

20

15

10

5

0

35

40

45

5 10 15 20 25 30Wheat (Tons)

Co

ffe

e (T

on

s)

30

25

20

15

10

5

0

35

40

45

5 10 15 20Wheat (Tons)

(a) United States (b) Brazil

12

18 8

4

A

B

A’

B’

C

C’

W

c

ww’

TradingPossibilities Line

TradingPossibilities Line

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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

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Supply and Demand Analysis of Exports and Imports

Pri

ce (

Per

Po

un

d;

U.S

. D

oll

ars

1.50

1.25

1.00

.75

.50

050 75 100 125 150

Quantity of Aluminum(Millions of Pounds)

1.50

1.25

1.00

.75

.50

050 100

Quantity of Aluminum(Millions of Pounds)

Pri

ce (

Per

Po

un

d;

U.S

. D

oll

ars

(a) U.S. Domestic Aluminum Market

(b) U.S. Export Supplyand Import Demand

Dd

Sd

U.S.ExportSupply

U.S.Import

Demand

a

b

c

x

y

Surplus = 50

Surplus = 100

Shortage = 50

Shortage = 100

U.S. Aluminum Market

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Supply and Demand Analysis of Exports and Imports

Pri

ce (

Per

Po

un

d;

U.S

. D

oll

ars

1.50

1.25

1.00

.75

.50

050 75 100 125 150

Quantity of Aluminum(Millions of Pounds)

1.50

1.25

1.00

.75

.50

050 100

Quantity of Aluminum(Millions of Pounds)

Pri

ce (

Per

Po

un

d;

U.S

. D

oll

ars

(a) Canada’s Domestic Aluminum Market

(b) Canada’s Export Supplyand Import Demand

Dd

Sd

CanadianExportSupply

CanadianImport

Demand

a

r

s

t

Surplus = 50

Surplus = 100

Shortage = 50

Canadian Aluminum Market

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Supply and Demand Analysis of Exports and Imports

1.00

.75

.88

050 100

Quantity of Aluminum(Millions of Pounds)

Pri

ce (

Per

Po

un

d;

U.S

. D

oll

ars

Equilibrium World Price andQuantity of Exports and Imports

CanadianExportSupply

CanadianImport Demand

e

World Market for Aluminum

U.S.ExportSupply

U.S.Import

Demand

Equilibrium

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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

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Trade Barriers

Quantity

Pri

ce

0

Dd

Sd

Pd

Q

Sd + Q

Pt

Pw

a b c d

Economic Effects of a Protective Tariff or an Import Quota

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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

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Trade Adjustment Assistance

• Trade Adjustment Assistance Act of 2002

• Offshoring• The World Trade Organization (WTO)

– The DOHA Round