Copyright © 2012 Pearson Addison-Wesley. All rights reserved.Chapter 2World Trade: An OverviewCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-2Preview• Largest trading partners of the United States and Texas• Gravity model of how economy’s size, distance and other factors influence trade• Borders and trade agreements• Globalization then and now – is the world shrinking?• Changing composition of trade• Multinational corporations and outsourcingCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-3Who Trades with the United States?• Five largest trading partners with the U.S. in 2008 were Canada, China, Mexico, Japan, and Germany (Mexico used to be ahead of China).• The total value of imports from and exports to Canada (trade volume) in 2008 was about $550 billion dollars (up from $500B in 2005). • The largest 15 trading partners with the U.S. accounted for 69% of the value of U.S. trade in 2008.Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-4Fig. 2-1: Total U.S. Trade with Major Partners, 2008Source: U.S. Department of CommerceCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-5Who Trades with Whom? US 2008Partner CountryImports Exports Trade BalanceTrade VolumeCanada 335 222 -112 557BChina 338 67 -270 405BMexico 216 132 -85 348BJapan 139 61 -78 200BGermany 96 50 -46 146BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-6Who Trades with Whom? US 2009Partner Country Imports ExportsTrade BalanceTrade VolumeCanada 225 172 -53 396BChina 296 65 -230 361BMexico 176 106 -71 282BJapan 96 47 -49 143BGermany 70 40 -30 110BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-7Who Trades with Whom? US 2010Partner Country Imports ExportsTrade BalanceTrade VolumeCanada 276 206 -70 481BChina 364 86 -278 450BMexico 229 132 -97 360BJapan 120 56 -64 176BGermany 81 44 -36 125BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-8Who Trades with Whom? US 2011Partner Country Imports ExportsTrade BalanceTrade VolumeCanada 316 234 -83 540BChina 398 97 -302 495BMexico 263 160 -103 423BJapan 128 61 -66 189BGermany 97 44 -52 141BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-9Who Trades with Whom? US 2012Partner Country Imports ExportsTrade BalanceTrade VolumeCanada 324 244 -80 568BChina 425 106 -321 531BMexico 276 175 -101 451BJapan 145 65 -80 210BGermany 105 44 -61 149BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-10US Trade by Industry 2011Industry Imports ExportsTrade BalanceTrade VolumeElectronic products 401 165 -236 566BTransportation equipment 307 258 -49 565BEnergy-related products 431 134 -297 565BChemicals and related products 254 214 -40 468BMinerals and metals 193 141 -52 334BCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-11US Trade by Industry 1997-2010Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-12US Exports by State 2009-2011State Exports2009 2010 2011%2009-2010%2010-2011Texas163 207 251B 27.0 21.2California120 143 159B 19.3 11.1New York59 68 85B 18.6 21.8Florida47 55 65B 18.0 17.2Washington52 53 65B 2.9 21.5Total forAll States1,056 1,277 1,480B 21.0 15.8Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-13US Exports by State 1997-2010Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-14Who Trades with Whom? TX Exports• Total Texas exports $207B (16% of all US exports), highest of all states (California 143B, New York 68B) in 2010 (has been the biggest exporter ever since 2002).• Texas exports fell at a slower rate than the US as a whole in 2009 and recovered faster in 2010.• If Texas were a nation, would rank among top 20 exporting countries (FRBD 2007).Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-15Who Trades with Whom? TX Exports• Compared to US, Texas exports a larger share of its output, depends on exports for more of its jobs, sends more sophisticated products overseas and employs higher-skilled workers in export-related jobs (FRBD 2007).Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-16Who Trades with Whom? TX Exports• Top three destinations: Mexico 73B (35%), Canada 19B (9%), China 10B (5%) in 2010.– Texas lags California and US in diversification across countries (FRBD 2007).Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-17Who Trades with Whom? TX Exports• Top five industries: Computers and electronic parts 39B, Chemicals 39B, Petroleum and coal 33B, Machinery except electrical 26B, Transportation equipment 19B in 2010.Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-18Who Trades with Whom? TX Imports 2004• Total Texas imports $202B in 2004.• $109B from Mexico• Venezuela, Saudi Arabia and China next with $8-9B each• Canada not in top 10 countries of origin for Texas importsCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-19Size Matters: The Gravity Model• 3 of the top 10 trading partners with the U.S. are the 3 largest European economies: Germany, U.K., and France. • These countries have the largest gross domestic product (GDP) in Europe.– GDP measures the value of goods and services produced in an economy.• Why does the U.S. trade most with these European countries and not other European countries?Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-20Size Matters: The Gravity Model (cont.)• The size of an economy is directly related to the volume of imports and exports.– Larger economies produce more goods and services, so they have more to sell in the export market.– Larger economies generate more income from the goods and services sold, so they are able to buy more imports.Copyright © 2012 Pearson Addison-Wesley. All rights reserved.2-21Fig. 2-2: The Size of European Economies, and the Value of Their Trade with the United StatesSource: U.S. Department of Commerce, European CommissionCopyright © 2012 Pearson Addison-Wesley. All rights reserved.2-22The Gravity ModelOther things besides size matter for trade: 1. Distance between markets influences transportation costs and therefore the cost of imports and exports.– Distance may also influence personal contact and communication, which may influence trade. 2. Cultural affinity: if two countries have cultural ties, it is likely that they also have strong economic ties.3. Geography: ocean harbors and a lack of mountain barriers make transportation and trade easier.Copyright © 2012 Pearson