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6 - 1Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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The United States in the
Global Economy
6C H A P T E R
6 - 2Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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INTERNATIONAL LINKAGES
Goods and Services
Capital and Labor
Information and Technology
Money
UNITEDSTATES
ECONOMY
OTHERNATIONAL
ECONOMIES
Trade Flows
Resource Flows
6 - 3Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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VolumeDependenceTrade PatternsFinancial
Linkages
THE UNITED STATES & WORLD TRADE
6 - 4Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Exports - Percent of GDP, 2002
Netherlands 62%Canada 41%Germany 36%New Zealand 33%Spain 29%Italy 28%France 27%United Kingdom 26%Japan 12%United States 11%
THE UNITED STATES & WORLD TRADE
6 - 5Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Principal U.S. Exports & Imports, 2002
THE UNITED STATES & WORLD TRADE
Chemicals $49.8
Semiconductors 42.3
Consumer Durables 40.1
Computers 38.6
Generating Equipment 27.6
Aircraft 26.7
Telecommunications 22.2
Automobiles 20.5
Grains 14.4
Nonferrous Metals 12.2
Automobiles $114.1
Petroleum 103.6
Computers 75.3
Household Appliances 66.4
Clothing 64.3
Chemicals 33.1
Consumer Electronics 32.8
Semiconductors 26.0
Telecommunications 23.2
Iron and Steel 17.7
Exports Amount Imports Amount
6 - 6Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Exports to:
Imports from:
Value (Billions of Dollars)
Value (Billions of Dollars)
Industrial Countries $381Developing Countries 302Total $683
Industrial Countries $594Developing Countries 573Total $1167
U.S. Exports & Imports of Goods,2002
THE UNITED STATES & WORLD TRADE
6 - 7Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Exports to:
Imports from:
Value (Billions of Dollars)
Value (Billions of Dollars)
Industrial Countries $381Developing Countries 301Total $683
Industrial Countries $594Developing Countries 573Total $1167
U.S. Exports & Imports of Goods,2002
THE UNITED STATES & WORLD TRADE
Imports Exceed Exports By
$484 BillionThat’s over 9,680,000 Jobs at $50,000 Each!
Imports Exceeded Exports by$346 Billion in 1999
6 - 8Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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RAPID TRADE GROWTHFacilitating Factors...
• Transportation Technology• Communications Technology• General Decline in Tariffs• Participants
•United States, Japan, and Western Europe•Multinational Corporations
•New Participants•Collapse of Communism
6 - 9Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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IN BILLIONS OF DOLLARS0 100 200 300 400 500 600 700
United StatesGermany
JapanFrance
United KingdomChina
CanadaItaly
NetherlandsBelgium-Lux.
MexicoSouth Korea
TaiwanSingapore
Spain
GLOBAL PERSPECTIVECOMPARATIVE EXPORTS, 2001
Source: World Trade Organization
6 - 10Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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• Basic Principle• Comparative Costs• Comparative Advantage• Terms of Trade• Gains from Specialization
& Trade
SPECIALIZATION ANDCOMPARATIVE ADVANTAGE
6 - 11Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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$1 will buyEXCHANGE
RATES:.63 British pounds
10.91 Mexican pesos
.93 European euros
119 Japanese yen
1237 South Korean won
47.68 Indian rupee
1.48 Canadian dollars
1.36 Swiss francs
8.54 Swedish krona
GLOBAL PERSPECTIVEForeign Currency per U.S. Dollar
6 - 12Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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• A Competitive Market• Linkages to All Domestic and Foreign Prices
• Dollar-Yen Market• Changing Rates:
• Depreciation & Appreciation
THE FOREIGN EXCHANGE MARKET
6 - 13Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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The Market for Yen
Quantity of Yen
Dol
lar
Pri
ce o
f 1
Yen
0
.01
P
QQe
Sy
Dy
ExchangeRate: $.01 = ¥1
THE FOREIGN EXCHANGE MARKET
6 - 14Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Equals
Equals
Equals
Equals
Dollar priceof foreigncurrency
rises
Internationalvalue of dollar
falls (dollardepreciates)
Foreigncurrencyprice of
dollar falls
Internationalvalue of foreigncurrency rises
(foreign currencyappreciates)
Currency Appreciation and Depreciation
THE FOREIGN EXCHANGE MARKET
6 - 15Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Trade Impediments & Subsidies
•Protective Tariffs
•Import Quotas
•Nontariff Barriers
•Export Subsidies
GOVERNMENT & TRADE
6 - 16Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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GOVERNMENT & TRADEWhy Government Trade Interventions?
•Misunderstanding of the Gains From Trade
•Political Considerations•Costs To Society•Multilateral Trade Agreements
•Free-trade Zones•Smoot-Hawley Tariff Act
6 - 17Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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GOVERNMENT & TRADEWhy Government Trade Interventions?• Reciprocal Trade Agreements Act,
1934•Negotiating Authority•Generalized Reductions•Most-Favored-Nation Clauses
• General Agreement on Tariffs and Trade (GATT)
•Uruguay Round• World Trade Organization (WTO)
6 - 18Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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GOVERNMENT & TRADEWhy Government Trade Interventions?
•The Doha Round (Qatar)•The European Union (EU)
•The EU Trade Bloc•The Euro
•North American Free Trade Agreement (NAFTA)
•Increased Global Competition
multinational corporations
comparative advantage
terms of trade
foreign exchange market
exchange rates
depreciation
appreciation
protective tariffs
import quotas
nontariff barriers
export subsidies
Smoot-Hawley Tariff Act
Reciprocal Trade Agreements Act
most-favored-nation clauses
General Agreement on Tariffs & Trade (GATT)
World Trade Organization (WTO)
Doha Round
European Union (EU)
trade bloc
euro
North American Free Trade Agreement (NAFTA)
Copyright McGraw-Hill/Irwin, 2005BACK END
6 - 20Copyright McGraw-Hill/Irwin, 2005
International Linkages
The United States and World Trade
Rapid Trade Growth
Specialization & Comparative Advantage
The Foreign Exchange Market
Government & Trade
Key Terms
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Measuring Domestic Outputand National Income
Coming up next...
Chapter 7