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CHAPTER 9
Andrew Carnegie
McGraw-Hill/Irwin
Patterns of Trade
Differences in the importance of trade
Total Output ($) Netherlands Germany Canada Italy France United Kingdom Japan United States 754 3,279 1,326 2,107 2,562 3,280 4,377 14,264 Export Ratio (%) 74 45 38 28 27 29 14 11 Import Ratio (%) 66 40 34 29 28 33 13 16
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Balance of Trade
The balance of trade is the difference between the value of exports and the value of imports Trade deficit = exports < imports Trade surplus = exports > imports The U.S. has a significant trade deficit of approximately $820 billion which is 5.5% of GDP
The U.S. is financing its trade deficit by selling off financial assets, stocks and bonds, and real assets, corporations and real estate
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Balance of Trade
Percent of GDP
2
1
0 -1 -2 -3 -4 -5
The United States has been running trade deficits since the 1970s
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1970
1980
1990
2000
2010
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The U.S. has not always had a trade deficit, following WWII, it had trade surpluses
The U.S. has gone from a large creditor nation to being a large debtor nation, international considerations have been forced on the nation
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The public believes that lower wages in other countries give them the comparative advantage in everything, so we will lose all jobs
Laypeople often think of trade as trade only in manufactured goods
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Transferable comparative advantages are based on factors that can change relatively easily, such as capital, technology, and types of labor Whether a country can maintain a much higher standard of living in the long run depends in part on whether its comparative advantage is inherent or transferable
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If factor prices arent equal, firms reduce costs by reorganizing production in countries with lower factor prices
The convergence hypothesis is the tendency of economic forces to eliminate transferable comparative advantage.
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SDomestic
Q
Imports
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SDomestic
$3.00 $2.50 $2.00
Quota = 50
Q
Imports w/o quota
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