INTERNATIONAL

TRADE
LECTURE 1:
The World of International Economics
 Self-Introduction of
Instructor

◦ProjectAssistant at Islamic Relief Organization

◦Professor’s Teaching Assistant Hunan University
◦Research Facilitator & English Language Detector of Research Review
Committee Hunan and Shandong University
◦Professors at several Universities in Yemen

 Education:

◦PHD degree candidate in International Trade and Economics at

Shandong university
◦Master degree of International Trade and Economics Hunan University
 Name

Experience of your major

Difficulties of your major

 Work Experience

Who is the representative in

the class?

Were you used to be taught

in English and Arabic? 3
Teaching methods:
1-Lectures using PPT slides (explanations for new terms might be provided under
each slide) .

2-Introductory videos from real life cases for the targeted chapter.(class embodiment ) And
illustrated videos for some class points .

3-Prepare for future career.(Your own case , design worksheet for your future project)

4-Field work (Field visit, group project, Designing Evaluation sheet for the targeted
organization).
5- Case study discussions.: Designing worksheets for the targeted discussion

6- Book and/or Handouts for further reading.

7- Book activities and exercises

Assessment and scoring breakdown:

Test 1 10%
Mid-term 20%
Assignments 10%
Attendance 10%
Final Exam 50%
 Contents
 What is International trade ?

 Why do countries trade ?

 History of international trade :

 Early theories of international trade

Chapter Warm-Up
 Watch the video and Work in a pair
answer the work sheet questions (5 marks
for the best )
 Video discussion
 SS embodiment
1.1What is International trade?
 Work in a group and make your own
definition of international trade from the
video worksheet?
International trade
 International trade studies the causes and
laws governing the Exchanges of goods
and services between the inhabitants of
the different Countries in their interest to
meet their needs for scarce goods.
Highlight

 In this definition it is important to highlight a quality that

makes different to international trade of any other kind of
trade and is That in order to make this exchange of
goods, we must cross the Borders of a country.

 Usually this cross border is controlled By a Customs

office that is responsible for controlling the entry and exit
of Resources.
Trademeans exchange of goods, services, or
both.Trade is also called commerce.

Tradingis greatly important to the global

economy.

Trade was also a boon for human

interaction, bringing cross-cultural contact to
a whole new level.

Trade originated in prehistoric times.It was

the main facility of prehistoric people, who
bartered goods and services from each other.
There is evidence of the exchange of obsidian
and flint during the Stone Age.

Materialsused for creating jewellery were

traded with Egypt since 3000 BCE.

Historians believe, the first long-distance trade

occurred between Mesopotamia and the Harappan
civilization of Indus Valley around 3000 BC.

From the very beginning of Greek civilization to

the fall of the Roman Empire in the 5th century,
a financially worthwhile trade brought valuable
spice to Europe from the Far East, including
China.
The fall of the Roman Empire, and the succeeding
Dark Ages brought insecurity to Western Europe and a
near end of the trade network.

The Sogdians ruled the East-West trade route known

as the Silk Road from the end 4th century AD to the
8th century AD.(The Silk Road was originally opened
up by Zhang Qian and it gradually formed in the Han
Dynasty (206 BC-220 AD))

The Vikings and Varangians also traded from the 8th

to the 11th century as they sailed from and to
Scandinavia. Vikings sailed to Western Europe, while
Varangians to Russia.

Vasco da Gama restarted the European Spice trade in

1498. Earlier to his sailing around Africa, the flow of
spice into Europe was controlled by Islamic powers,
especially Egypt.
 Mercantilism (pre-16th century)
A nation’s wealth depends on accumulated
treasure.
 Gold and silver are the currency of trade.

 Free Trade theories(17th-18th century)

AbsoluteAdvantage (Adam Smith, 1776)
Comparative Advantage (David Ricardo, 1817)

 Neo classical Theories:

 Heckscher -Olin Theory(1919)
 Product Life Cycle Theory
 New Trade Theory
 Porter’s Diamond

 19th Century: British colonialism based on the

principles of liberalism. European states forcing for
trade in Africa, India, Southeast Asia and Latin
The first ‘long-distance’ trade occurred between
Mesopotamia and the Indus Valley in Pakistan around
3000 BC, historians believe.

In the absence of proper roads, the most efficient

way to transport goods from one place to another was
by sea.

The first and most extensive trade networks were

actually waterways like the Nile, the Tigris and the
Euphrates in present-day Iraq and the Yellow River in
China.
Cities grew up in the fertile basins on the borders of

those rivers and then expanded by using their watery

highways to import and export goods.
The domestication of camels around 1000 BC helped

encourage trade routes over land, called caravans,

and linked India with the Mediterranean.

The invention of money has made trade
simpler. Today traders generally negotiate
through the medium of exchange, like money,
which then makes buying separate from selling,
or earning.

 GATT was designed by the UN in 1946

aimed to increase trade by tariff reduction.

 Later, World Trade Organization (WTO)

established in 1995, (global international
organization dealing with the rules of trade
between nations).
 As transportation has become increasingly less
expensive and telecommunications have
improved,hence international trade has
flourished.
 By understanding international trade, we will
uncover one of the most important real life
applications of macroeconomics.

 The importing and exporting of goods is big

business in today's global economy and it
balances the Nation’s Economic stability.

 Dumping should be prevented.

 The process of trade should favour the

nation’s growth.
History of international trade:
early theories
 International trade from the 16th to the
17th century
 Industrial Revolution: Nineteenth
century
The neoclassical school and
its background
 Mercantilists
 The absolute Advantage
 The comparative advantage
 International Economics
 The world is getting smaller every day
 What does it mean?
 What proof it? Any sign?

 International trade is very important

 Ancient
times
 Nowadays
 International Economics
 The development of international trade
and its attribute to early economic thinking
 Increase the well-being of nation
 Differences between inside transaction and
foreign trade
 International Economics
 The contents of international economics
study
 Concern: allocate limited resources to meet
desired economic objectives
 How to influence social welfare, income
distribution, employment, growth, and price
stability and so on…
The Nature of Merchandise Trade

 The geographical composition of trade

 Table 1
 Composition
 Time tendency and reason

 Conclusion: exports outgrown production which

means countries are becoming more

interdependent
$320 million
RMB 1.747 billion
19.9% stake
RMB 5.67 billion
20% stake
The Nature of Merchandise Trade
 Table 2
 Focus on North America, Europe, and Asia
 Reason of different performance

 Conclusion: the industrialized countries dominate

world trade and new economies have become

increasingly important.
The Nature of Merchandise Trade
 Table 3
 Category 1: North America, Europe, Asia
 Category 2: South and Central America, CIS

 Category 3: Africa and Middle East

 Conclusion: the major markets for all regions’

exports are in North America, Europe, and Asia

The Nature of Merchandise Trade
 Table 4
 2005 data
 2008 data:
 Exports: Germany 1327, China 1218, United States
 Imports: USA, Germany, China, Japan, France, UK

 2010 data:
 Exports: China 1577.8, United States 1278.1, Germany 1268.1,
Japan, Netherland, France, South Korea, Italy, Belgium, Russia
 Imports: USA, China, Germany, Japan France, UK, Netherland,
Italy, Hong Kong, South Korea
 Nature conditions, technology conditions, education, law,
and political conditions differences
 Conclusion: world trade tends to be concentrated among
relatively few major traders
The Nature of Merchandise Trade

 The commodity composition of trade

 Table 5
 Primary goods: food, beverage, fuel, mining,
grease
 Manufactures

 Conclusion: increasing importance of

manufactures trade and declining importance of

primary goods
The Nature of Merchandise Trade

 Example: U.S. International Trade

 Geographical: Canada, Mexico, China, Japan
 Commodity:
 Exports: capital goods, industrial supplies and
materials
 Imports: industrial supplies and material, consumer

goods, capital goods

The Nature of Merchandise Trade
 Example: China
 Geographical
 2005: E.U, U.S.A, Japan, Hong Kong, ASEAN, Korea, Taiwan,
Russia, Australia, Canada (81.5%)
 2006: E.U, U.S.A, Japan, Hong Kong, ASEAN, Korea, Taiwan,
Russia, Australia, India (79.7% )
 2007: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan,
Russia, Australia, India (78.6%)
 2008: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan,
Australia, Russia, India (75.9%)
 2009: E.U, U.S.A, Japan, ASEAN, Hong Kong, Taiwan, Korea,
Australia, Russia, India
 2010: E.U, U.S.A, Japan, ASEAN, Hong Kong, Korea, Taiwan,
Australia, Brazil, India
 Australia, Brazil, Kazakhstani, ASEAN, Burma, Malaysia, Japan,
Africa, Angola, Iran, Russia, South Korea, Vietnam, South Africa…
The Nature of Merchandise Trade
 Tendency:
 First eight countries are China’s fundamental market in the
future
 The rank will reflect political situation: Canada, India
 Hong Kong and Taiwan will keep stable and Taiwan may
exceed Hong Kong in the future
 The proportion of top ten partner is slowly declining and ratio
of Africa and Latin America will increased in the future
 Brazil has rapid development in trade and may squash in top
ten partner
 Also, India and Russia have tremendous potential in the
future
 World Trade in Services
 Service category now accounts for the largest
share of income and employment in many
industrial countries
 Including: wholesale and retail trade, restaurants and
hotels, transport, storage, communications, financial
services, insurance, real estate, business services,
personal services, community services, social
services, and government services
 International trade in services: commercial services,
investment income, and government services
 World Trade in Services
 Commercial service is hard to estimate
accurately
 No agreed definition of what constitutes a
traded service
 No agreed ways to measure the service trade
 Most service transactions are not observable
 World Trade in Services
 Geographical nature of trade in services—in line
with merchandise trade
 Table 8
 2005 data
 2008 data
 Exports: United States, U.K. Germany, France, China, Japan,
Spain, Italy, India, Netherlands
 Imports: United States, Germany, U.K. Japan, China, France,
Italy, Spain, Ireland, Netherlands
 2010 data
 Exports: United States, Germany, U.K., China, France, Japan,
Spain, Singapore, Netherlands, India
 Imports: United States, Germany, China, U.K., Japan, France,
India, Netherlands, Italy, Ireland
 Conclusion: concentrated on the industrial countries and
emerging economies
 Industrialization and urbanization in progress

1978 2008 OECD

GDP decomposition
Agriculture 28% 11% 2.6%
Industry 48% 49% 27%
Service 24% 40% 70%
Population
Rural 81% 57% 23.3%
Urban 19% 43% 76.7%
 World Trade in Services
 GATT and WTO
 GATT: temporary institute
 WTO: contemporary organization which
independent to UN
 Object: to eliminate the tariff and other restrictions
and develop a stable, fair, and free international
trade
 Core: all agreement

 Fundamental principle: indiscriminate principle

 Including intellectual property, investment

measure, and service transaction
The Changing Degree of Economic
Interdependence
 Index of trade volume:
international interdependence=(export + import) / GDP
export – import = net export GDP = C + I + G + NX
 Table 9
 Focus on Belgium, Netherlands, Czech Republic, and
Nigeria.
 Focus on Singapore

International interdependence= (ex+im)/economic aggregate (GDP +

foreign products)

 Conclusion:increasing importance of international

interdependence
 Review
 To make a brief introduction of international
economics

 To research the nature of merchandise trade

including geographical composition and the
commodity composition of trade

 To realize the increasing importance of service

transaction

 To understand the changing degree of economic

interdependence
 Homework
 Research your own country’s trade data in
last three years and in 1990, do a
geographic and commodity composition
analyze.
 Try to find trade tendency of your country
and explain.
 Try to say something about consumption
habits in your country.