The Export-Import Sector
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 should buy it
– This maxim is true for individuals and
nations
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Merchandise Imports and Exports as
Percentage of Goods Produced in the
United States, 1990-2000
Since 1990 our imports and
exports as a percentage of
goods produced in the United
States has grown steadily.
More than one-quarter of all
the goods produced here are
shipped abroad, while our
imports are equal to about
one-third of the goods we
produce in the United States
Imports
Exports
1990
1992
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1994
1996
1998
2000
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Sum of U.S. Imports and Exports as
Percentage of GDP, 1970-2000
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 McGraw-Hill Companies, Inc. All rights reserved.
84
86
88
90
92
94 96
98 2000
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U.S. Balance of Trade in Goods, Services, and
Overall Balance, 1970-2000 (in billions of dollars)
Balanc e
on s erv ic es
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 mid-1970s, has
grown steadily worse
since 1991 and now
totals more than $300
billion
Ov erall
balanc e
on goods
and s erv ic es
Balanc e
on goods
1970
1975
1980
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
1985
1990
1995
2000
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A Summing Up: C + I + G + Xn
Net exports = Xn
Xn = Exports - Imports
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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C+I+G+(X-M)
C+I+G
C+I
Due to Imports
being greater than
Exports
C
C + I + G + Xn
10,000
10,000
C+I+G
8,000
C+I+G
8,000
C + I + G + Xn
6,000
6,000
4,000
4,000
2,000
2,000
45û
45û
2,000
4,000
6,000
8,000
Disposable income ($)
10,000
2,000
8,000
6,000
4,000
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 McGraw-Hill Companies, Inc. All rights reserved.
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The World’s Top Ten Exporting
Nations, 1999
United States
683
Germany
520
Japan
388
Canada
358
China
214
South Korea
Mexico
133
118
Taiw an
110
Singapore
110
Sw itzerland
79
100
200
300
400
500
600
700
(billions of dollars)
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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