6 - 1 Copyright 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 Previous Slide Next Slide End Show The United States in the Global Economy 6 C H A P T E R

6 - 2 Copyright 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 Previous Slide Next Slide End Show INTERNATIONAL LINKAGES Goods and Services Capital and Labor Information and Technology Money UNITED STATES ECONOMY OTHER NATIONAL ECONOMIES Trade Flows Resource Flows

6 - 3 Copyright 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 Previous Slide Next Slide End Show Volume Dependence Trade Patterns Financial Linkages THE UNITED STATES & WORLD TRADE

6 - 4 Copyright 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 Previous Slide Next Slide End Show Exports - Percent of GDP, 2002 Netherlands62% Canada41% Germany36% New Zealand33% Spain29% Italy28% France27% United Kingdom26% Japan12% United States11% THE UNITED STATES & WORLD TRADE

6 - 5 Copyright 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 Previous Slide Next Slide End Show Principal U.S. Exports & Imports, 2002 THE UNITED STATES & WORLD TRADE Chemicals$49.8 Semiconductors42.3 Consumer Durables40.1 Computers38.6 Generating Equipment27.6 Aircraft26.7 Telecommunications22.2 Automobiles20.5 Grains14.4 Nonferrous Metals12.2 Automobiles$114.1 Petroleum103.6 Computers75.3 Household Appliances66.4 Clothing64.3 Chemicals33.1 Consumer Electronics32.8 Semiconductors26.0 Telecommunications23.2 Iron and Steel17.7 ExportsAmountImportsAmount

6 - 6 Copyright 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 Previous Slide Next Slide End Show Exports to: Imports from: Value (Billions of Dollars) Industrial Countries$381 Developing Countries 302 Total$683 Industrial Countries$594 Developing Countries 573 Total $1167 U.S. Exports & Imports of Goods, 2002 THE UNITED STATES & WORLD TRADE

6 - 7 Copyright 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 Previous Slide Next Slide End Show Exports to: Imports from: Value (Billions of Dollars) Industrial Countries$381 Developing Countries 301 Total$683 Industrial Countries$594 Developing Countries 573 Total $1167 U.S. Exports & Imports of Goods, 2002 THE UNITED STATES & WORLD TRADE Imports Exceed Exports By $484 Billion That’s over 9,680,000 Jobs at $50,000 Each! Imports Exceeded Exports by $346 Billion in 1999

6 - 8 Copyright 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 Previous Slide Next Slide End Show RAPID TRADE GROWTH Facilitating Factors... Transportation Technology Communications Technology General Decline in Tariffs Participants United States, Japan, and Western Europe Multinational Corporations New Participants Collapse of Communism

6 - 9 Copyright 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 Previous Slide Next Slide End Show IN BILLIONS OF DOLLARS United States Germany Japan France United Kingdom China Canada Italy Netherlands Belgium-Lux. Mexico South Korea Taiwan Singapore Spain GLOBAL PERSPECTIVE COMPARATIVE EXPORTS, 2001 Source: World Trade Organization

Copyright 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 Previous Slide Next Slide End Show Basic Principle Comparative Costs Comparative Advantage Terms of Trade Gains from Specialization & Trade SPECIALIZATION AND COMPARATIVE ADVANTAGE

Copyright 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 Previous Slide Next Slide End Show $1 will buy EXCHANGE RATES:.63 British pounds Mexican pesos.93 European euros 119 Japanese yen 1237 South Korean won Indian rupee 1.48 Canadian dollars 1.36 Swiss francs 8.54 Swedish krona GLOBAL PERSPECTIVE Foreign Currency per U.S. Dollar

Copyright 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 Previous Slide Next Slide End Show A Competitive Market Linkages to All Domestic and Foreign Prices Dollar-Yen Market Changing Rates: Depreciation & Appreciation THE FOREIGN EXCHANGE MARKET

Copyright 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 Previous Slide Next Slide End Show The Market for Yen Quantity of Yen Dollar Price of 1 Yen 0.01 P QQeQe SySy DyDy Exchange Rate: $.01 = ¥1 THE FOREIGN EXCHANGE MARKET

Copyright 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 Previous Slide Next Slide End Show Equals Dollar price of foreign currency rises International value of dollar falls (dollar depreciates) Foreign currency price of dollar falls International value of foreign currency rises (foreign currency appreciates) Currency Appreciation and Depreciation THE FOREIGN EXCHANGE MARKET

Copyright 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 Previous Slide Next Slide End Show Trade Impediments & Subsidies Protective Tariffs Import Quotas Nontariff Barriers Export Subsidies GOVERNMENT & TRADE

Copyright 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 Previous Slide Next Slide End Show GOVERNMENT & TRADE Why Government Trade Interventions? Misunderstanding of the Gains From Trade Political Considerations Costs To Society Multilateral Trade Agreements Free-trade Zones Smoot-Hawley Tariff Act

Copyright 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 Previous Slide Next Slide End Show GOVERNMENT & TRADE Why 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)

Copyright 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 Previous Slide Next Slide End Show GOVERNMENT & TRADE Why 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, 2005 BACKEND

Copyright 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 Previous Slide Next Slide End Show Elasticity of Demand and Supply Coming up next... Chapter 7