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Unformatted text preview: these countries, all components are then shipped and assembled in
• Then the iPhones are delivered to final consumers in various countries.
• Complete iPhones arrive to American consumers
-- after the phones components have crossed at least four borders, including the U.S. border twice. – The world GDP growth (3.3%) vs. the world trade growth (5.0%) 1 International Trade Theory: New order of international trade
• Main issues at recent WTO trade negotiations:
" Labor standard, environmental issues
Market excess of manufacturing and service
Dynamic comparative advantages
New protectionism – Absolute advantage: natural vs. acquired
– Comparative advantage !
• Specialize in producing a commodity with relative greater advantage
• Specialize in producing a commodity with relatively lesser disadvantage • Direction of trade? • Trade imbalances: – " US trade (goods) deficits -- $745 bil during 2012
" US current a/c deficits -- $487 bil during 2012
" China What economists say?
• Why trade? s current a/c surplus - $214 bil in 2012 • Free/fair trade and protectionism, mixed
" REI and FTAs (US-Korea, Colombia, Panama, Austrailia, India…),
The incomplete Doha round
" Protectionism during the global recession since 2007 Trade theories: Time line, 1500 - present Trade Theory Timeline Countries tend to export products using their abundant and cheaper factors of
# Heckscher-Ohlin Theorem – Empirical evidence: Leontief Paradox • Evolution of comparative advantage
– Comparative advantage may shift over time.
# Product Life Cycle Theory • New trade theory
– Global job outsourcing
– National competitiveness, the role of the government, strategic trade Comparative Advantage
Inability of a nation to produce a good more efficiently than other nations, but
an ability to produce that good more efficiently than it does any other good. The U.S. 1 resource unit = 1 ton rice or
1/2 ton tea Mexico 1 resource unit = 1/6 ton rice or
1/3 ton tea Specialization and trade allow each
to produce and consume more
5-9 New Trade Theory
" Gains from specialization and economies of scale...
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- Fall '13