CHAPTER 6: THE UNITED STATES IN THE GLOBAL ECONOMY

INTERNATIONAL LINKAGES

Several economic flows link the U.S. economy and the economies of other nations. These flows are:

• Goods and services flows or simply trade flows – U.S. exports goods and services to other nations and imports goods and services from them.

•  Capital and labor flows or simply resource flows – U.S. firms establish production facilities – new capital—in foreign countries and foreign firms establish production facilities in the U.S.

• Information and technology flows– The U.S. transmits information to other nations about U.S. products, prices, interest rates, and investment opportunities and receives such information from abroad.

THE UNITED STATES AND WORLD TRADE

Global trade has been greatly facilitated by (a) improvements in transportation technology, (b) improvements in communications technology, and (c) general decline in tariffs.

Foreign Exchange Market

-is a market in which various national currencies are exchanged for one another.

• A competitive market

•  Linkages to all domestic and foreign prices.

GOVERNMENT AND TRADE

There are four means by which governments commonly interfere with free trade:

• Protective tariffs – are excise taxes or duties placed on imported goods.

• Import quotas – are limits on the quantities or total value of specific items that may be imported.

•  Nontariff barriers – include onerous licensing requirements, unreasonable standards pertaining to product quality, or simple bureaucratic red tape in customs procedures.

• Export subsidies – consist of government payments to domestic producers of export goods.

INTERNATIONAL TRADE AGREEMENTS AND FREE-TRADE ZONES

• Reciprocal Trade Agreements Act

It has 2 main features:

·         Negotiating Authority – it authorized the president to negotiate with foreign nations agreement that would reduce existing U.S. tariffs up to 50 percent.

·         Generalized Reductions – the specific tariff reductions between the United States and any particular nation were generalized through most favored-nation clauses, which often accompany such agreements.

•  General Agreement on Tariffs and Trade (GATT) – was based on three principles: (1) equal, nondiscriminatory trade treatment for all member nations, (2) reduction of tariffs by multilateral negotiations and (3) the elimination of import quotas.