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Chapter 5 notes

Chapter 5 notes - The United States in the Global Economy...

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The United States in the Global Economy CHAPTER FIVE THE UNITED STATES IN THE GLOBAL ECONOMY LECTURE NOTES I. Learning objectives – In this chapter students will learn: A. Some key facts about U.S. international trade. B. About comparative advantage, specialization, and international trade. C. How exchange rates are determined in currency markets. D. How and why government sometimes interferes with free international trade. E. The role played by free-trade zones and the World Trade Organization (WTO) in promoting international trade. II. Introduction A. Even on a wilderness backpacking trip, Americans are not leaving the world behind. Much of backpacking equipment may be imported, not to mention the vehicle they used to arrive at the trail, the coffee they sip, etc. B. Many “American” products are made with components from abroad or are manufactured there. For example, the Chevrolet Lumina is made in Canada; the Gerber baby food company is owned by a Swiss company; Burger King is owned by a British corporation. The component parts of many “American” products are manufactured abroad. III. Linkages A. Several economic flows link the U.S. economy with the economies of other nations. (Figure 5.1) B. These linkages are: 1. Goods and services flows; 2. Capital and labor (resource) flows; 3. Information and technology flows; 4. Financial flows. IV. U.S. and World Trade A. Volume: 1. Table 5.1 gives an index of the importance of world trade to several countries, based on their exports relative to total output. 2. Figure 5.2 reveals the growth in U.S. imports and exports over past decades. Currently, exports and imports are 11 percent and 16 percent of GDP, which is more than double their importance of twenty-five years ago. 3. The U.S. is world’s leading trading nation measured in total volume of trade, but not relative to its GDP. The U.S. share of total world trade has diminished from a post- World War II level of one-third of total trade to one-eighth today. B. Dependence: 76
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The United States in the Global Economy 1. U.S. depends on imports for many food items (bananas, coffee, tea, spices); raw silk, diamonds, natural rubber, much petroleum. 2. On the export side, agriculture relies on foreign markets for one-fourth to one-half of sales; chemical, aircraft, auto, machine tool, coal, and computer industries also sell major portions of output in international markets (see Table 5.2). C. Trade pattern: 1. The U.S. has a trade deficit in goods. In 2005, U.S. imports exceeded exports of goods by $782 billion. 2. While we have a deficit in goods trade, U.S. export of services exceeds the import of services by $58 billion. 3. The U.S. imports some of the same categories it exports. Specifically, automobiles, computers, chemicals, and semiconductors. (See Table 5.2) 4. Slightly more than half of U.S. trade is with industrially advanced countries. (See Table 5.3) 5. Canada is the United States’ most important trade partner quantitatively. Twenty-four percent of U.S. exports sold went to Canadians, who in turn provided 17 percent of U.S.
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