Trade in the Global economy

Question 1

What is a trade balance?

Answer 1

Difference between the total value of export and imports

Question 2

What is a trade surplus?

Answer 2

Countries that export more than they import, such as China in recent years, run a trade surplus

Question 3

What is a trade deficit?

Answer 3

Countries that import more than they export, such as the United States, run a trade deficit.

Question 4

What is bilateral trade balance?

Answer 4

The bilateral trade balance is the difference of exports

and imports between two countries. Us bilateral trade balance with China is a deficit

Question 5

What is the issue with calculating trade deficit/surpluses with international trade models?

Answer 5

• Assumed that countries have balanced trade
• Due to calculating deficit/surpluses being a slippery concept with the value added rarely equally the cost of the export for example

Question 6

What are the two forms of products traded in world trade?

Answer 6

• Good/merchandise e.g. phones,shoes, computers, food(strawberries from morroco)
• Service e.g. travel, financial services (US banks in London), call centre, education, R&D service, consulting service

Question 7

What is the biggest part of the

merchandise trade?

Answer 7

Manufactured products-70%

Question 8

What are among the top three

merchandise exporters?

Answer 8

1China,
2US
3Germany

Question 9

What are among the top three

merchandise importers?

Answer 9

1 US
2China
3 Germany

Question 10

What are among the top three

commercial service exporters?

Answer 10

1 US
2 UK
3 Germany

Question 11

What are among the top three

commercial service importers?

Answer 11

1 US
2 China
3 Germany

Question 12

How has US imports and exports changed 1925-2014?

Answer 12

• Imports- 1925- 90%(Industrial Supplies+food/drink), 10%Consumer and capital goods)
-2014 35%-(Industrial Supplies+food/drink), 65%(Consumer and capital goods)
• Exports-1925- 80%(Industrial Supplies+food/drink), 20%Consumer and capital goods)
-2014 40%-(Industrial Supplies+food/drink), 60%(Consumer and capital goods)

Question 13

What is the second-way trade can be reported?

Answer 13

• Trade compared with GDP

Question 14

Explain trade compared with GDP

Answer 14

• Allows openness to be calculated
• Countries with the highest ratios of trade to GDP tend to be small in economic/geographical size. e.g. Luxembourg/Singapore exceeding its GDP
• This is because large countries tend to trade within borders whereas small countries in proximity to others trade more relative to GDP

Question 15

Give an example of the issue of calculating trade values in terms of value-added of a product

Answer 15

2013- iPhone 5
• Valued at $227 when shipped from China to US
•Sold for $650 in US
• Only $8 is the value added by Chinese assembly labour
• Rest of the value added from other countries exports of the intermediate goods

Question 16

What is the trade in the Global Value chain of China export of electronics and UK exports of cars?

Answer 16

• China-50 China, 9%Japan, USA 5% etc

* UK- 72% UK, 5%Germany, 3% US

Question 17

How does knowledge of the global value chain effect calculation of the impact of brexit?

Answer 17

Cannot just look at the impact of import/exports but instead the value added chain

Question 18

What is the impact of tariffs when a country has a trade defecit such as US

Answer 18

Impact of a tariff large on other countries e.g. china as they will not be able to export as much as demand will fall from US due to products being more expensive

Question 19

What is inter-industry trade?

Answer 19

•trade between industries.

 E.g. US exports computers to China and China exports shoes to US

Question 20

What is intra-industry trade?

Answer 20

•Intra-industry trade: trade within an industry
 E.g. US exports Ford to Japan and Japan exports Toyota to
US.
• The Grubel-Lloyd Index of an industry is used to calculate

Question 21

How is openness calculated?

Answer 21

Openness=Exports+Imports/GDP

Question 22

What is the Grubel-Lloyd Index of an industry (i) and explain values

Answer 22

GLi=1- (exports i-imports i)/(exports i + imports i )
• The value is between 0 and 1. The larger it is, the larger is intra-industry trade.
• What if Exports=0 or Imports=0? GL=0 e.g. only imports cars and doesn’t export
• What if Exports=Imports? GL=1

Question 23

What is the Grubel-Lloyd index sensitive to?

Answer 23

Classication of an industry e.g. Automobile intra trade may be different to the intra trade of the intermediate goods e.g. wheels

Question 24

What is the evolution of intra-industry trade interms of income of countries?

Answer 24

• High income to high income countries is higher as they have similar economies
• Low to high is lower becuase there is more inter trade e.g. in the past china exports shoes to US and US exports computers to China but this intra trade increasing
•

Question 25

Explain world export trade of merchandise trade?

Answer 25

• The largest exporter destination is Europe- nearly 40%
• 2nd Asia and 3rd NA
• by product-nearly 70% is manufactured goods then fuels and agriculture

Question 26

Explain the exports of goods of Europe

Answer 26

• Highest export destination=europe (70%)
• Trade between European countries is high because import tariffs
(taxes on international trade) are low, no tariffs between EU members.
• There are also large trade flows between the North America and Europe. Europe exported 9% of goods to NA.
• large amount of world trade occurs between countries that are similar in their levels of industrialization/income

Question 27

Explain the exports of goods of North America

Answer 27

• large amount of trade recorded within North America.
• Trade within North America is larger than the trade with Europe and Asia.
• A main reason is the North American Free Trade Area, consisting of Canada, the United States, and Mexico.

Question 28

Explain the exports of goods for Asia

Answer 28

• Half of exports within Asia

* Asia would be higher in world exports if it included services which are increasingly important e.g. India

Question 29

Explain the export of goods in other regions

Answer 29

• South/Central America/ Caribbean, 3.4% of world exports.
• Africa, 2.4% of world exports
• Middle East, 5.4 of world exports
• Manufactures are main exports for i.e.Europe, North America and Asia.
• Manufactures are NOT main exports for these regions: 28%vs 18% vs 23%
• Fuels and mining products: 42% vs 66% vs 68%

Question 30

Explain the different types of trade agreements

Answer 30

• Preferential trade area(PTA)-reduction of intra-group tariffs
• Free Trade area-removal of intra-group tariffs
• Customs Union-Common External Tariff
• Common Market-Intra-group capital and labour mobility
• Economic union-Common economic policies

Question 31

What are the main reasons for trade?

Answer 31

• Proximity - affects the costs of transportation e.g. Canada among top exporters of snowboards to US
• Resources-factors of production e.g. Austria higher exporter of Snowboards to US than Mexico due to physical resources (e.g. snow mountains)
• but country doesn’t have to have natural resources e.gUAE exports of snowboards and Icewine
• Absolute advantage
• Comparative advantage