GlobalizationGlobalizationandand

World TradeWorld Trade

Globalization a la FacebookGlobalization a la Facebook

OpennessOpenness

Trade in goods and servicesTrade in goods and services

FinanceFinance

LaborLabor

Nations are more closely linked through Nations are more closely linked through trade in goods and services, through flows trade in goods and services, through flows of money, through investments, but not of money, through investments, but not through labor flows.through labor flows.

Examples:Examples:– Countries that are very open to international Countries that are very open to international

trade?trade?– Countries that are not participating in Countries that are not participating in

international trade?international trade?– Countries whose financial markets are very Countries whose financial markets are very

open?open?– Countries that are not open to flows of money?Countries that are not open to flows of money?– A previous era of globalization?A previous era of globalization?

Is the Study of International Economics Is the Study of International Economics Important?Important?

The Least Open CountryThe Least Open Country

Current U.S. Trade BalanceCurrent U.S. Trade Balance

http://www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Recent Global TradeRecent Global Trade

Recent World TradeRecent World Trade

U.S. Trade Balance

U.S. Average Tariff RateU.S. Average Tariff Rate

Chinese TradeChinese Trade

Trade OpennessTrade Openness(exports+imports)/GDP(exports+imports)/GDP

U.S. Net Foreign AssetsU.S. Net Foreign Assets

Financial OpennessFinancial Openness

Flows of Capital to Developing CountriesFlows of Capital to Developing Countries(as Percentage of Advanced-Country GDP)(as Percentage of Advanced-Country GDP)

Labor OpennessLabor Openness Immigrants as a Percentage of the U.S. Population Immigrants as a Percentage of the U.S. Population

What is different about the study of international What is different about the study of international economics from a study of a national economy?economics from a study of a national economy?On the trade side:On the trade side:– Governments regulate international trade (tariffs, quotas and Governments regulate international trade (tariffs, quotas and

regulation) and investment (taxes and regulation). regulation) and investment (taxes and regulation). – Governments can discriminate against a subgroup (typically Governments can discriminate against a subgroup (typically

foreign) companies.foreign) companies.

On the monetary side:On the monetary side:– Governments control the supply of their currency.Governments control the supply of their currency.– Governments can control the (nominal) exchange rate.Governments can control the (nominal) exchange rate.– Governments can regulate capital flows.Governments can regulate capital flows.

On the labor side:On the labor side:– Governments can set immigration policy, and to a lesser Governments can set immigration policy, and to a lesser

extent, governments can also set emigration policy.extent, governments can also set emigration policy.

Patterns of TradePatterns of Trade

Differences inDifferences in labor productivity labor productivity may explain why some may explain why some countries export/import certain products.countries export/import certain products.

Differences in Differences in climate and resourcesclimate and resources can explain why can explain why Brazil exports coffee and Australia exports iron ore. Brazil exports coffee and Australia exports iron ore.

How How relative supplies of capital, labor and landrelative supplies of capital, labor and land are used are used in the production of different goods may also explain why in the production of different goods may also explain why some countries export certain products.some countries export certain products.

But why does Japan export automobiles, while the US But why does Japan export automobiles, while the US exports aircraft?exports aircraft?

Historical developments Historical developments can also inform us about the can also inform us about the patterns of trade.patterns of trade.

Gains from TradeGains from Trade

1.1. Trade is a voluntary transaction, both sides receive Trade is a voluntary transaction, both sides receive something that they want.something that they want.

2.2. Even a country that is the most efficient producer of Even a country that is the most efficient producer of everything will gain from trade.everything will gain from trade.

– Ricardian Comparative advantage.Ricardian Comparative advantage.

3.3. Countries will export goods which use abundant Countries will export goods which use abundant resources and imports goods which use scarce resources and imports goods which use scarce resources. resources.

– H-O trade theoryH-O trade theory

4.4. With trade, countries can specializeWith trade, countries can specialize

-- IRS theoryIRS theory

Harm from TradeHarm from Trade

Trade is predicted to benefit Trade is predicted to benefit countries as a countries as a wholewhole, but trade may harm , but trade may harm particular groups particular groups within a countrywithin a country. .

– International trade can adversely affect the owners of International trade can adversely affect the owners of resources that are used intensively in industries that resources that are used intensively in industries that compete with imports.compete with imports.

– Trade may therefore have effects on the distribution Trade may therefore have effects on the distribution of income within a country.of income within a country.

Specialization induced by trade can also make Specialization induced by trade can also make countries more vulnerable to shocks.countries more vulnerable to shocks.

International Trade International Trade Versus International Finance Versus International Finance International trade focuses on transactions International trade focuses on transactions of real goods and services across nations. of real goods and services across nations.

– These transactions usually involve a physical movement These transactions usually involve a physical movement of goods or a commitment of tangible resources like of goods or a commitment of tangible resources like labor services.labor services.

– Intra-temporal trade.Intra-temporal trade.

International finance focuses on financial or monetary International finance focuses on financial or monetary transactions across nations. transactions across nations.

– For example, purchases of US dollars or financial assets For example, purchases of US dollars or financial assets by Europeans.by Europeans.

– Inter-temporal trade.Inter-temporal trade.

The Effects of Government Policies The Effects of Government Policies

on Tradeon TradePolicy makers affect the amount of trade in goods, Policy makers affect the amount of trade in goods, services, and financial assets through services, and financial assets through

– tariffstariffs: taxes on imports or exports, : taxes on imports or exports,

– quotas:quotas: a quantity restriction on imports or exports, a quantity restriction on imports or exports,

– export subsidiesexport subsidies: a payment to producers that export,: a payment to producers that export,

– or through or through other regulations other regulations (e.g., product specifications) (e.g., product specifications) that exclude foreign products from the market, or restrict exports that exclude foreign products from the market, or restrict exports of certain domestic products, services or financial assets.of certain domestic products, services or financial assets.

What are the costs and benefits of these policies?What are the costs and benefits of these policies?

– Describe the detailed impact of any trade policy; Describe the detailed impact of any trade policy; both intended and unintended.both intended and unintended.

– What are the benefits and drawbacks of the policy What are the benefits and drawbacks of the policy in question?in question?

– How do we aggregate / evaluate the total impact How do we aggregate / evaluate the total impact of this policy?of this policy?

– Are there different frameworks of ethical reference Are there different frameworks of ethical reference that lead to different conclusions?that lead to different conclusions?

– What do I think?What do I think?

An Ethical FrameworkAn Ethical Framework