International Trade Notes
Topic 1 – Trade in the Global Economy
Ø Information globalization – information would have taken months to reach other
countries – while nowadays you can get information immediately
Ø Labour mobility – takes about 24 hours to travel anywhere nowadays – while before
it would take 6-months by ship to come from Britain to NZ
Ø Trading goods and services – goods and services are produced and exchanged all
over the world
Ø Political globalization – EU have joined together to have agreements for overall
economic growth
Ø Culture and language globalization – mixing between different cultures through
media and transportation
Ø Capital mobility – everything is driven by money – globalization is driven by money –
so that you can make more profit – negotiate business deals with other countries in
order to expand your business
Ø We rely greatly on trade to help support ourselves – one German supermarket
removed all foreign products in order to show how much we depend on other
countries – and the only thing left on the shelf were a few beers
Ø NZ’s exports dairy, tourism, education services (foreign students study here and
generate a lot of value for NZ), WETA Digital (helped made Lord of the Rings and The
Hobbit)
Ø 1850’s is the first trade globalization – and trade crash in the early 1900’s due to the
World Wars – after the war’s things start to recover – and now 50-60% of total world
GDP is from trade
Ø GFC caused a huge collapse in world trade
Ø Technological progress has directly caused the trade globalization – the cost as
compared to 1930 of sea freight is 21%, air transport is 15% and calling costs have
become nearly 0%
Ø Second cause of globalization is trade liberalization – tariffs have dropped from 25%
in 1930s to under 5% now
Ø WTO has helped to reduce tariffs has countries have entered into multilateral trade
agreements – it has survived from more than 50 years
Ø There are also many regional trade agreements such as the EU, ASEAN, NAFTA
(USMCA new name)
Ø There are almost 300 preferential trade agreements in force – in 1950’s it was
almost 0 – most of these agreements have come from developing countries
Ø Global supply chain – many parts of the Boeing 787 come from all over the world
– wings come from Japan, many parts from Australia, Europe – it is finally
assembled in the headquarter of Boeing Company in the USA
Ø Final assembly only takes 3-days now and there is reduction in assembly costs
Ø Trade between LEDC’s before 1940’s was stable and very low – but now it accounts
for 30% of all trade share
Ø Cross-border claims is bank lending and exchanging securities
Ø FDI has increased by 470% since 1980 while imports and exports have increased by
55%
, Ø Capital goods move closely with FDI – 33% of USA exports was from capital goods to
arm’s length parties and 30% to related parties (subsidiaries)
Ø Many of the trades are occurring between the same company over all the world
Ø Globalization has gone digital – Global Internet Protocol – 1992 it was 100GB per day
– in 2022 it will be 150,000GB per second
Ø In 2005 16.8% of the world was using internet – now it is more than 50% of the
world watching internet
Ø This gives many opportunities for business – before you needed a big deal – you can
open your own online store by yourself – you can design apps and generate ad
revenue
Ø US advertising has largely changed in 2019 $123.1 billion was spent on internet
advertising
Ø Retail sales on e-commerce has increased from $1.336 billion to $4.135 billion
Ø E-commerce retail sales account for 15.5% of total global retail sales as compared to
2015 which was 7.4%
Ø Emerging economies are integrated more extensively into the world trading system,
due to the surge of global production network and supply-chain trade
Ø Trade protectionism is rising in many advanced economies such as Brexit and US-
Chine trade war
US-China Trade War
Ø NZ is a very open economy – if the biggest two partners fight it will have
consequences on us – we rely very heavily on trade
Ø Recently, the international trade has seen fast expansion – and there is a lot of
interdependence between many countries
Ø Peak Pegasus – cargo went from US with 70,000 tons of soy sauce worth 23 million
USD – it was meant to arrive on July 6 – the cargo sped up to 25km/h
Ø US imposed 25% import tariffs – effective midnight EDT which is July 6th – this would
mean that extra 6 million would need to be paid in tariffs – and the ship was late by
5 hours
Ø And they drifted around for 1-month in an attempt to avoid the tariff – but they
went back and paid their 6 million
Ø Tariff between US and China was 3.1% and 8.0% respectively – and by the end of
2019 it had become 21% for both countries
Ø In 2001 after WTO accession – both countries cut their tariffs – 20% of imports of
USA imports came from China – USA imports were 500-600 billion
Ø USA exports also raised exponentially – but exports were 180 billion – this put USA in
a deficit
Ø USA runs huge trade deficits with its top 5 trading partners – 50% of the trade deficit
is from China
Ø This war between China
and US is expected to last
a decade as seen by the
US-Japan trade war in
1980s
,Ø Trump’s posts on twitter say – that they have a 500 billion trade deficit and 300
billion loss on intellectual property
Ø There are too many restrictions in EU for USA products making it hard to export
Ø Trump is trying to come up with a new trade agreement with NAFTA
Ø To Trump having a deficit means that you are not engaging in fair trade – so he is
trying to renegotiate
Ø However, the numbers may be hard to comprehend – as when iPhone are imported
China may only get 2% but the full value of the iPhone is added to the imports to US
Ø If USA always has a trade deficit how are they able to finance
the bill
Ø USA mainly only runs a deficit in goods while they have
positive FDI and services trade – but this is not as advertised
by the media
Ø The current account deficit is much smaller than the trade
deficit
Ø US trade deficit overall is only 2.3% of overall GDP – USA has becoming trade
openness – and run deficits in current account since 1982
Ø When you export more than you import – you gain foreign currency – surplus means
you make money
Ø Your welfare depends on how much money you can spend – your lifetime welfare is
calculated by how much you spend not how much you have saved
Ø When you have a deficit – you can borrow, you can use your
accumulated wealth or run down their foreign assets
Ø When you invest by things such as building a factory overseas it
is a form of direct investment
Ø If you buy foreign stocks below 10% it is known as portfolio
investment
Ø If you lend money overseas it is other investment
Ø Central bank also invests overseas – they need to hold foreign reserves
Ø When foreigners purchase US resources it goes under credit and is considered an
export for the US
Ø When US purchases foreign resources, it is a debit as they are importing foreign
assets
Ø US invest way more than overseas than what foreigners invest in US – this positive
balance means that US foreign reserves increase
Ø CA records the int’l transactions of goods and services which are used for current
consumption & investment;
Ø FA records the int’l transactions of asset ownerships which generate income in the
future (interest, dividend, capital gains, etc.)
Ø Due the deficits it reduces the foreign reserves that the US has in order to fund the
deficit
Ø US companies invest more overseas than foreign companies do
into the US – so the companies have to take money out of the
US to invest therefore foreign reserves fall
Ø Overall the US has a FA surplus so the FR will increase
Ø So, the CA deficit is financed by the FA surplus – by definition
these two accounts must be equal
, Ø Capital account may refer to debt forgiveness to foreign country
Ø Sometimes you can’t have full information of what is being imported and exported –
so you put them under net errors and omissions
Ø Flow variable – is the amount of income flowing into your account – such as income
over of week
Ø Stock variable refers to how much income you have at a particular time
Ø US is a net debtor to the rest of the world
Ø Foreigners are investing in US so that raises your liabilities
Ø Eventhough US is a net debtor the services on the CA is positive so
foreigners are still paying US for its services
Ø This is because US does not solely borrow – they also own foreign assets
Ø US has been a net debtor since 1989 but its net income is always positive
Ø US borrows heavily from foreign countries but they also invest heavily
Ø US earns a huge amount from the direct investment they make overseas than they
have to pay to the foreigners who invest in US – which helps to fund the deficit
Ø US has a very high portfolio deficit because foreigners invest a lot in US companies to
gain dividends – however, this income is used for direct investment overseas – they
are working as a venture capitalist – invest in risky schemes to gain high return
Example: Suppose that the U.S. owes USD 100 billion to the rest of the world and pays the annual interest rate
of 1%, while the U.S. owns USD 80 billion foreign assets at an average annual return of 5%.
• 80 − 100 = −20: the U.S. is a net debtor to the rest of the world
• 80 × 5% − 100 × 1% = 4 − 1 = 3: the U.S. has a positive net int’l investment income
Ø You need to look at the gross numbers – not only the net numbers – US runs trade
deficit in goods by makes surplus in services
Ø Most cars are made in joint ventures with China (50-50) – and US exported 4 times
more cars to China than they imported
Ø US makes huge returns from its investments in other countries
Topic 1 – Trade in the Global Economy
Ø Information globalization – information would have taken months to reach other
countries – while nowadays you can get information immediately
Ø Labour mobility – takes about 24 hours to travel anywhere nowadays – while before
it would take 6-months by ship to come from Britain to NZ
Ø Trading goods and services – goods and services are produced and exchanged all
over the world
Ø Political globalization – EU have joined together to have agreements for overall
economic growth
Ø Culture and language globalization – mixing between different cultures through
media and transportation
Ø Capital mobility – everything is driven by money – globalization is driven by money –
so that you can make more profit – negotiate business deals with other countries in
order to expand your business
Ø We rely greatly on trade to help support ourselves – one German supermarket
removed all foreign products in order to show how much we depend on other
countries – and the only thing left on the shelf were a few beers
Ø NZ’s exports dairy, tourism, education services (foreign students study here and
generate a lot of value for NZ), WETA Digital (helped made Lord of the Rings and The
Hobbit)
Ø 1850’s is the first trade globalization – and trade crash in the early 1900’s due to the
World Wars – after the war’s things start to recover – and now 50-60% of total world
GDP is from trade
Ø GFC caused a huge collapse in world trade
Ø Technological progress has directly caused the trade globalization – the cost as
compared to 1930 of sea freight is 21%, air transport is 15% and calling costs have
become nearly 0%
Ø Second cause of globalization is trade liberalization – tariffs have dropped from 25%
in 1930s to under 5% now
Ø WTO has helped to reduce tariffs has countries have entered into multilateral trade
agreements – it has survived from more than 50 years
Ø There are also many regional trade agreements such as the EU, ASEAN, NAFTA
(USMCA new name)
Ø There are almost 300 preferential trade agreements in force – in 1950’s it was
almost 0 – most of these agreements have come from developing countries
Ø Global supply chain – many parts of the Boeing 787 come from all over the world
– wings come from Japan, many parts from Australia, Europe – it is finally
assembled in the headquarter of Boeing Company in the USA
Ø Final assembly only takes 3-days now and there is reduction in assembly costs
Ø Trade between LEDC’s before 1940’s was stable and very low – but now it accounts
for 30% of all trade share
Ø Cross-border claims is bank lending and exchanging securities
Ø FDI has increased by 470% since 1980 while imports and exports have increased by
55%
, Ø Capital goods move closely with FDI – 33% of USA exports was from capital goods to
arm’s length parties and 30% to related parties (subsidiaries)
Ø Many of the trades are occurring between the same company over all the world
Ø Globalization has gone digital – Global Internet Protocol – 1992 it was 100GB per day
– in 2022 it will be 150,000GB per second
Ø In 2005 16.8% of the world was using internet – now it is more than 50% of the
world watching internet
Ø This gives many opportunities for business – before you needed a big deal – you can
open your own online store by yourself – you can design apps and generate ad
revenue
Ø US advertising has largely changed in 2019 $123.1 billion was spent on internet
advertising
Ø Retail sales on e-commerce has increased from $1.336 billion to $4.135 billion
Ø E-commerce retail sales account for 15.5% of total global retail sales as compared to
2015 which was 7.4%
Ø Emerging economies are integrated more extensively into the world trading system,
due to the surge of global production network and supply-chain trade
Ø Trade protectionism is rising in many advanced economies such as Brexit and US-
Chine trade war
US-China Trade War
Ø NZ is a very open economy – if the biggest two partners fight it will have
consequences on us – we rely very heavily on trade
Ø Recently, the international trade has seen fast expansion – and there is a lot of
interdependence between many countries
Ø Peak Pegasus – cargo went from US with 70,000 tons of soy sauce worth 23 million
USD – it was meant to arrive on July 6 – the cargo sped up to 25km/h
Ø US imposed 25% import tariffs – effective midnight EDT which is July 6th – this would
mean that extra 6 million would need to be paid in tariffs – and the ship was late by
5 hours
Ø And they drifted around for 1-month in an attempt to avoid the tariff – but they
went back and paid their 6 million
Ø Tariff between US and China was 3.1% and 8.0% respectively – and by the end of
2019 it had become 21% for both countries
Ø In 2001 after WTO accession – both countries cut their tariffs – 20% of imports of
USA imports came from China – USA imports were 500-600 billion
Ø USA exports also raised exponentially – but exports were 180 billion – this put USA in
a deficit
Ø USA runs huge trade deficits with its top 5 trading partners – 50% of the trade deficit
is from China
Ø This war between China
and US is expected to last
a decade as seen by the
US-Japan trade war in
1980s
,Ø Trump’s posts on twitter say – that they have a 500 billion trade deficit and 300
billion loss on intellectual property
Ø There are too many restrictions in EU for USA products making it hard to export
Ø Trump is trying to come up with a new trade agreement with NAFTA
Ø To Trump having a deficit means that you are not engaging in fair trade – so he is
trying to renegotiate
Ø However, the numbers may be hard to comprehend – as when iPhone are imported
China may only get 2% but the full value of the iPhone is added to the imports to US
Ø If USA always has a trade deficit how are they able to finance
the bill
Ø USA mainly only runs a deficit in goods while they have
positive FDI and services trade – but this is not as advertised
by the media
Ø The current account deficit is much smaller than the trade
deficit
Ø US trade deficit overall is only 2.3% of overall GDP – USA has becoming trade
openness – and run deficits in current account since 1982
Ø When you export more than you import – you gain foreign currency – surplus means
you make money
Ø Your welfare depends on how much money you can spend – your lifetime welfare is
calculated by how much you spend not how much you have saved
Ø When you have a deficit – you can borrow, you can use your
accumulated wealth or run down their foreign assets
Ø When you invest by things such as building a factory overseas it
is a form of direct investment
Ø If you buy foreign stocks below 10% it is known as portfolio
investment
Ø If you lend money overseas it is other investment
Ø Central bank also invests overseas – they need to hold foreign reserves
Ø When foreigners purchase US resources it goes under credit and is considered an
export for the US
Ø When US purchases foreign resources, it is a debit as they are importing foreign
assets
Ø US invest way more than overseas than what foreigners invest in US – this positive
balance means that US foreign reserves increase
Ø CA records the int’l transactions of goods and services which are used for current
consumption & investment;
Ø FA records the int’l transactions of asset ownerships which generate income in the
future (interest, dividend, capital gains, etc.)
Ø Due the deficits it reduces the foreign reserves that the US has in order to fund the
deficit
Ø US companies invest more overseas than foreign companies do
into the US – so the companies have to take money out of the
US to invest therefore foreign reserves fall
Ø Overall the US has a FA surplus so the FR will increase
Ø So, the CA deficit is financed by the FA surplus – by definition
these two accounts must be equal
, Ø Capital account may refer to debt forgiveness to foreign country
Ø Sometimes you can’t have full information of what is being imported and exported –
so you put them under net errors and omissions
Ø Flow variable – is the amount of income flowing into your account – such as income
over of week
Ø Stock variable refers to how much income you have at a particular time
Ø US is a net debtor to the rest of the world
Ø Foreigners are investing in US so that raises your liabilities
Ø Eventhough US is a net debtor the services on the CA is positive so
foreigners are still paying US for its services
Ø This is because US does not solely borrow – they also own foreign assets
Ø US has been a net debtor since 1989 but its net income is always positive
Ø US borrows heavily from foreign countries but they also invest heavily
Ø US earns a huge amount from the direct investment they make overseas than they
have to pay to the foreigners who invest in US – which helps to fund the deficit
Ø US has a very high portfolio deficit because foreigners invest a lot in US companies to
gain dividends – however, this income is used for direct investment overseas – they
are working as a venture capitalist – invest in risky schemes to gain high return
Example: Suppose that the U.S. owes USD 100 billion to the rest of the world and pays the annual interest rate
of 1%, while the U.S. owns USD 80 billion foreign assets at an average annual return of 5%.
• 80 − 100 = −20: the U.S. is a net debtor to the rest of the world
• 80 × 5% − 100 × 1% = 4 − 1 = 3: the U.S. has a positive net int’l investment income
Ø You need to look at the gross numbers – not only the net numbers – US runs trade
deficit in goods by makes surplus in services
Ø Most cars are made in joint ventures with China (50-50) – and US exported 4 times
more cars to China than they imported
Ø US makes huge returns from its investments in other countries
