Chapter 24_20e

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24
International Trade
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Some Key Trade Facts
• U.S. trade deficit in goods
• $735 billion in 2012
• U.S. trade surplus in services
• $196 billion in 2012
• Canada largest U.S. trade partner
• Trade deficit with China
• $315 billion in 2012
• Exports are 14% U.S. output
LO1
Economic Basis for Trade
• Nations have different resource
•
•
•
LO2
endowments
Labor-intensive goods
Land-intensive goods
Capital-intensive goods
Comparative Advantage
• Assumptions
• Two nations
• Same size labor force
• Constant costs in each country
• Different costs between countries
• Comparative Advantage
• Country produces good with lowest
domestic opportunity cost
• Total output is greatest
LO2
Comparative Advantage
• Case for free trade
• Increase total output
• Efficient allocation of resources
• Promote competition
LO2
Trade Barriers and Export Subsidies
• Tariffs
• Revenue tariff
• Protective tariff
• Import quota
• Nontariff barrier (NTB)
• Voluntary export restriction
•
LO4
(VER)
Export subsidy
The Case for Protection
• Military self-sufficiency
• Diversification for stability
• Infant industry
• Alleged exception to free trade
• Protection against dumping
• Increased domestic employment
• Smoot-Hawley Tariff Act
• Cheap foreign labor
LO5
GATT
• Three principles
• Equal, nondiscriminatory trade
between member nations
• Reduction in tariffs
• Elimination of import quotas
LO5
WTO
• Established by Uruguay Round of
•
•
•
LO5
GATT
159 member nations in 2013
Oversees trade agreements and rules
on disputes
Critics argue may allow nations to
circumvent environmental and worker
protection laws
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
Increased output, faster economic
growth
NAFTA
• Agreement between U.S., Canada,
•
•
•
LO5
Mexico
Establishes free trade zone between
the countries
Trade has increased in all countries
Enhanced standard of living
Trade Adjustment and Offshoring
• Trade Adjustment Assistance Act
• Designed to help individuals hurt by
•
LO5
international trade
• Increases political support for
reducing trade barriers
Offshoring of jobs
• Shifting of work previously done by
American workers to workers
abroad
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