International Trade

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• International Trade

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• Text book
• International EconomicsTheory and Policy(7ed)
• Paul R. Krugman
• Maurice Obstfeld

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Chapter 1

• Introduction

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About This Course

• Principle of Economics
• Theoretical Economics vs. Applied Economics
• About Mathematics
• Our stress concepts applications
• Lecture week 6-19 Test week 20
• Attendance
• Assignments Class Discussions

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BRIEF CONTENTS

• PREFACE
• 1 Introduction
• PART I INTERNATIONAL TRADE THEORY
• 2 World Trade An Overview
• 3 Labor Productivity and Comparative
  Advantage The Ricardian Model
• 4 Resources, Comparative Advantage and Income
  Distribution
• 5 The Standard Trade Model
• 6 Economies of Scale, Imperfect Competition,
  and International Trade
• 7 International Factor Movements

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BRIEF CONTENTS

• PART II INTERNATIONAL TRADE POLICY
• 8 The Instruments of Trade Policy
• 9 The Political Economy of Trade Policy
• 10 Trade Policy in Developing Countries
• 11 Controversies in Trade Policy

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7

• Why are we caring about International trade?

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Fig 1-1
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Trade Openness
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Billion dollars
Billion Dollars
Export
Export
Import
Import
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Introduction

• What is International Economics About?
• International Economics Trade and Money

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What is International Economics About?

• International trade deals with economic
  interactions that occur between sovereign
  nations.
• (eg. Trade between U.S. Mexico Shanghai
  Beijing?)
• The role of governments in regulating
  international trade and investment is
  substantial.
• Analytically, international markets allow
  governments to discriminate against a subgroup of
  companies.
• Governments also control the supply of currency.

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1.What Is International Economics About?

Micro-part
The Gains from Trade
Protectionism
The Pattern of Trade
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What is International Economics About?

• The Gains from Trade
• Can cannot produce by itself.
• Why import when a good could be produced
  domestically?
• When countries sell goods and services to one
  another, all countries benefit.
• (ch3, productivity wage ch4, production factor
  abundance ch6, economies of scale Specialization
  effieicncy _tangible goods
• ch7, factor movements international migration
  borrowing and lending._intangible goods)
• Trade and income distribution
• International trade might hurt some groups within
  nations. (eg. specific resources owners labor
  and capital owners)
• Trade, technology, and wages of high and
  low-skilled workers. (disputs) (ch4,ch5)

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What is International Economics About?

• The Pattern of Trade (Who trade with whom or
  sells what to whom?)
• Climate and resources determine the trade pattern
  of several goods.
• In manufacturing and services the pattern of
  trade is more subtle.
• (eg. Japan for autos vs. U.S. for aircraft? )
• -International difference in labor
  productivity.(ch3, Ricardo,19C)
• -The relative supply use of national
  resources such as capital, labor, and
  land.(ch4,20C, powerful but controversial)
• -A substantial random component.(ch6,
  economy of scale, market structure, policy etc.)
• There are two types of trade
• Interindustry trade depends on differences across
  countries.
• Intraindustry trade depends on market size and
  occurs among similar countries.

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What is International Economics About?

• Protectionism? (How much to trade?)
• Globalization for or against? (NAFTA vs. EU? WTO
  negotiation, ASIA) (Seattle)
• Cost-benefit analysis? Many governments are
  trying to shield certain industries from
  international competition. (eg. Export
  subsidizing or import quota)
• Government interventions politics.
• (ch4 income distribution effects ch9-11 power
  within countries matters)
• This has created the debate dealing with the
  costs and benefits of protection relative to free
  trade.
• Advanced countries policies engage in industrial
  targeting.
• Developing countries policies promote
  industrialization
• Import substitution versus export promotion
  industrialization.

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What is International Economics About?

• The Balance of Payments
• Some countries run large trade surpluses.
• For example, in 1998 both China and South Korea
  ran trade surpluses of about 40 billion each.
• Global Imbalance
• Is it good to run a trade surplus and bad to run
  a trade deficit?
• Exchange Rate Determination
• The role of changing (floating) exchange rates is
  at the center of international economics.

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What is International Economics About?

• International Policy Coordination
• A fundamental problem in international economics
  is how to produce an acceptable degree of harmony
  among the international trade and monetary
  policies of different countries without a world
  government that tells countries what to do.
• The International Capital Market
• There are risks associated with international
  capital markets
• Currency depreciation (even contagious)
• National default

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Macro-part
The Balance of Payments
International Policy Coordination
The International Capital Market
Exchange Rate Determination
??
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2.International Economics Trade and Money

International Economics
Our Focus
International Trade (real transactions)
International Money (financial transactions)
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International Economics Trade and Money

• International trade analysis focuses primarily on
  the real transactions in the international
  economy.
• These transactions involve a physical movement of
  goods or a tangible commitment of economic
  resources.
• Example The conflict between the United States
  and Europe over Europes subsidized exports of
  agricultural products.
• Antidumping case. Customs duties. Cow diseases

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International Economics Trade and Money

• International monetary analysis focuses on the
  monetary side of the international economy.
• That is, financial transactions such as foreign
  purchases of U.S. dollars.
• Example The dispute over whether the foreign
  exchange value of the dollar should be allowed to
  float freely or be stabilized by government
  action.
• Should RMB appreciate ? Is it undervalued? If
  yes, how much is it undervalued?

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International Economics Trade and Money

• International trade issues
• Part I International Trade Theory
• Part II International Trade Policy
• International monetary issues
• Part III Exchange Rates and Open-Economy
  Macroeconomics
• Part IV International Macroeconomic Policy