World Trade: An Overview

Yin Bing
 What Trades with Whom?

•
Total U.S. Trade with Major Partners(Figure 2-1)
 The Gravity Model of world trade
• T --value of trade between country i and country j
ij
• A--constant term
• Yi--country i's GDP
• Yj--country j's GDP
• D --distance between two countries
ij
• Tij = A×Yi×Yj/Dij (2-1)
Other things equal, the value of trade between any two count
ries is proportional to the product of the 2 countries' GDPs, and d
 More general gravity model

• Tij = A×Yai×Ybj/Dcij (2-2)

• a,b,c are chosen to fit the actual data as closely as possible a
nd they can be all equal to 1.
• working: large economies----large income----large amounts on import
s----produce wide range of products---attract other countries's large s
pending(U.S. trade with Germany, U.K.)
• so, other things equal, the trade is larger, the larger is either economy.

• What other things aren't equal?----factors affecting international trade

(U.S. trade with Ireland, Netherlands, Belgium)(Figure 2-2)
 Impediments to Trade--Gravity Model showing
• strong negative effect of distance on international trade
( 1% increase in the distance is with a fall of 0.7-1% in the tra
de)
• Canada, Mexico trade with U.S. much more than European
countries trade with U.S.(Figure 2-3)
• large distance tends to diminish the intensive trade with clos
e personal contact
• U.S. representative visit Toronto--Paris--Tokyo
 The Changing Pattern of World Trade
The world got smaller
• 2 great waves of globalization:1st relying on railroads, steamships
and the telegraph; 2nd relying on jets and the Internet.
• Modern transportation and communications have abolished distan
ce.
• “vertical disintergration” of production (PC, iphone)
World trade suffered setbacks
• 2 world wars and the Great Depression of the 1930s and the
widespread protectionism greatly depressed world trade.
• Political forces can outweigh the effects of technology.
What do we trade?

World exports:(Figure 2-5)

• Manufactured goods (automobiles, computers, clothing)
• Fuels and mining (oil, coal and other fuel, copper ore ）
• Agricultural products (wheat, soybeans and cotton)
• Services (transportation fees, insurance fees, new types--modern tel
ecommunications--overseas call and help centers)
Primary products changed on both sides of the trade. (Table 2-3)
Third world/developing countries exports of manufactured
goods had rised. (Figure 2-6)
• Service Offshoring/Outsourcing--when a service previously d
one within a country is shifted to a foreign location.
• Tradable service in U.S. (Figure 2-7)
• Services are traded at long distances within U.S.
New York(financial capital) --financial services
Seattle(home of Microsoft)--software publishing
California(Googleplex in Mountain view)--Internet search services
 Do Old Rules Still Apply?
• YES--The underlying logic of international trade rem
ains the same. Even
• World trade has become harder to characterize in si
mple terms.
• The sources of modern trade are more subtle. (natur
al resources, human resources, human-created reso
urces)
Group Discussion---- Problems on P22
• 10 minutes
• 5 groups: each group for each question
• 1 person of each group answers