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International Trade

International Trade. Mgmt. 418 Assoc. Prof. Dr. Şule Lokmanoğlu Aker. Chapter 19. Balance-of-Payments Accounts. China’s trade surpluses and deficits. There is huge imports coming into the US from China. There are two suggestions: Imposing new trade restrictions on China,

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International Trade

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  1. International Trade Mgmt. 418 Assoc. Prof. Dr. Şule Lokmanoğlu Aker

  2. Chapter 19 Balance-of-Payments Accounts

  3. China’s trade surpluses and deficits There is huge imports coming into the US from China. There are two suggestions: • Imposing new trade restrictions on China, • Persuade Chinese to raise the value of its currency in order to make Chinese goods more expensive for the US buyers. US trade deficit with China Years $billion 2004 -162 2005 -202 2006 -233 2007 -257 2008 -267

  4. China’s trade surpluses and deficits Despite the merchandise trade surpluses, however, China has had continual deficits in services. Thus, its current account surplus is smaller than its goods (merchandise) surplus. Current account: Goods imports and exports net trade account balance Services imports and exports (transportation, travel, communication services, construction services, etc) Unilateral payments net current account balance

  5. Balance of Payments (BOP) Accounts These accounts attempt to maintain a systematic record of all economic transactions between the home counry and the rest of the world for a specific time period, usually one year.

  6. Trade in merchandise World merchandise exports (1973-2008) Year Value of world exports ($, billion) 1973 582 1980 2,036 1985 1,947 1990 3,485 1995 4,890 2000 6,186 2007 13,950 2008 15,775

  7. Current account deficits (CAD) It means that the country is spending more than its income, or saving too little relative to its investments. • CAD shows that the country is recovering from the recession more rapidly than its trading partners. Higher domestic incomes lead to higher imports, but exports are not being boosted because incomes abroad are not rising. • Home country may be an attractive destination for foreign investment because of expected high returns due to favorable business conditions, technological change, or overall increases in productivity. The investment inflows produce a financial account surplus, which may be associated with CAD. • FDI into the country may be increasing. • Net financial capital inflows lowers the home country’s interest rates, stimulating investments and employment.

  8. Capital movements Individuals, corporations, financial institutions, and governments buy, sell, and hold international assets at an increasing volume. These assets are bank deposits, bonds, stocks, and even physical facilities (like factory buildings, land, property, etc)

  9. Increasing financial interdependence 1973 1980 1985 1990 1995 2000 2005 2008 • Total int. bank lending ($ bill) 602 1,181 2,580 6,298 8,073 10,779 21,125 33,335 (2) Cross-border Stocks and bonds (%) of GDP Canada 3 (%) 9 27 65 187 331 NA NA France NA 5 21 54 187 415 NA NA Germany 5 7 33 57 167 334 NA NA Italy 1 1 4 27 253 640 NA NA Japan 2 8 62 119 65 85 NA NA USA 4 9 35 89 33 179 NA NA (3) Int. Reserves of CBs 228 452 481 979 1,521 2,066 4,288 6,828 (4) Total outflow of FDI (yearly) 40 43 168 281 553 1,245 779 1,997

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