COI1. The United States in the Global Economy

The United States in the Global EconomyCOI1Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.International LinkagesUnitedStatesEconomyOtherNationalEconomiesGoods & ServicesCapital & LaborInformation & TechnologyMoneyLO1World TradeVolume as a percentage of GDPLarger for small countriesLarger for countries with restricted resourcesDependence on world marketLack key resourceSell surplus goodsLO2Trade deficitImports exceed exportsBorrow from foreignersSell real assets to foreignersTrade surplusExports exceed importsLend to foreignersWorld TradeLO2Rapid Trade GrowthTransportation technologyCommunications technologyGeneral decline in tariffsAll nations participateLO2United States TradeLO2SpecializationShift resources to export industryAchieve higher overall output and incomeAbsolute advantageHigher output per worker for a goodComparative advantageLower domestic opportunity cost for a goodLO3Comparative AdvantageAvocados 0 20 24 40 60Soybeans 15 10 9 5 0Mexico’s Production Possibilities Table (in Tons)Avocados 0 30 33 60 90Soybeans 30 20 19 10 0Product A B C D EU.S.’s Production Possibilities Table (in Tons)Production AlternativesLO3Production AlternativesComparative AdvantageLO3Mexico will produce avocadosU.S. will produce soybeansU.S. gives up 3 A for 1 SMexico gains 4 A for 1 STerms of trade3.5 A for 1 SBoth countries benefit Comparative AdvantageLO3Gains from tradeMexico starts at C (24 A and 9S)Move to E (60 A and 0 S)Trade 35 A for 10 SU.S. starts at T (33 A and 19 S)Move to R (0 A and 30 S)Trade 10 S for 35 AOverall gains?Comparative AdvantageLO3Exchange RatesOne U.S. dollar will buy54.54 Indian rupees1.54 British pounds1.01 Canadian dollars12.01 Mexican pesos0.95 Swiss francs1.30 European euro100.94 Japanese yen1,087 South Korean won6.58 Swedish kronorsMay 2013LO4Source: International Monetary FundChanging Exchange RatesShifts in demand for currencyShifts in supply of currencyRise in dollar price of yenDollar depreciatesCurrency appreciationLO4Trade BarriersProtective tariffsImport quotasNontariff barriersExport subsidiesLO5Reasons for Trade BarriersMisunderstanding gains from tradePolitical considerationsCosts to societyLO5Multilateral Trade AgreementsTrade WarsLong history of U.S. tariffsSmoot-Hawley Tariff Act of 1930Reciprocal Trade Agreements Act of 1934Reduce tariffsNegotiating AuthorityMost-Favored-Nation ClauseLO6Multilateral Trade AgreementsGeneral Agreement on Tariffs and Trade (GATT)Equal trade treatmentReduction in tariffsElimination of import quotasUruguay Round 1995LO6Multilateral Trade AgreementsWorld Trade Organization (WTO)Successor to GATT151 nations belongDoha Round (Doha, Qatar)Trade negotiationLatest round 2001LO6Free Trade ZonesEuropean Union (EU)Established 1958The euro zoneNorth American Free Trade Agreement (NAFTA)Established 1993Canada, Mexico, and U.S.LO6Trade-Related IssuesTrade adjustment assistanceOffshoring of jobsOutsourcingBenefits and costsFair-trade productsThe purposeLO7