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Global aspects of trade
This tutorial was written by Ken Edge
Head Teacher HSIE
Cardiff High School
Outcomes
Overview
Content
Review exercises
More
Outcomes
HSC topic: The Global Economy is covered in the Board of Studies NSW Stage 6 Economics Syllabus (1999) on pages 31-33. The specific outcomes for this tutorial are:
| H1: | demonstrates understanding of economic terms, concepts, and relationships. |
|---|---|
| H3: | explains the role of markets within the global economy. |
| H4: | analyses the impact of global markets on the Australian and global economies. |
| H7: | evaluates the consequences of contemporary economic problems and issues on individuals, firms, and governments. |
| H8: | applies appropriate terminology, concepts and theories in contemporary and hypothetical economic contexts. |
Being up to date and aware of contemporary issues
This tutorial is based on figures available in 2002 and although the concepts and information included are still relevant you should keep this in mind when looking at statistics included.
Students of Economics should be aware of contemporary economic issues so you may wish to find out what the recent trends in world trade are and compare them to those reported in the tutorial. Updated statistics can be obtained by visiting the World Bank and World Trade Organisation websites included at the end of the tutorial under 'MORE'.
Overview
The process of globalisation has far reaching effects on individuals, businesses, governments; and the economy. To help gain a better understanding of these effects students need to examine trade, investment, technology, finance and labour market issues in the global economy.
In this tutorial students will also be able to apply their knowledge and economic skills to analyse statistical information to determine the patterns of global trade and the impacts on the world economy.
Content
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Trends in world trade to 2000
- During 2000 the value of World Merchandise Trade increased by 12.5%. Exports were valued at US$6 358 billion (ten year average increase 1990-2000, 6%) and imports at US$6 662 billion (ten year average increase 1990-2000
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World trade and output
The influence of the international business cycle on the volume of world trade and world output (real GDP) is illustrated in Graph 1.
The year 2000 saw the strongest global trade and output growth in more than a decade. The expansion of the world economy was directly related to the fast growing new economy of North America, the developing Asian and a revival of the Russian and South American economies.
During 2000, North America and Western Europe accounted for about 60% of global output and trade. This growth was not sustained in 2001 and a United States led downturn in global economic activity and trade resulted.
The Asian Economic Crisis in 1998 created a similar situation with lower growth rates in world trade and output.
The effect of the slowdown on output, investment and trade will be felt globally well into 2002. The telecommunications sector is leading the slide with more than one third of a million jobs lost around the world in the first half of 2001. In Asia, where many of the devices and components for the telecom and computer firms are made and assembled more than two million workers are expected to lose their jobs.
The collapse of One.Tel (May 2001) and the decline in the share price of Telstra during 2001 illustrates the effect on the Australian economy.
Graph1
Source: Developed using information from the IMF World Economic Outlook 2001
The share of world merchandise trade by country is shown in Table1. Compared to the United States and the other advanced economies Australia’s share of world merchandise trade is relatively small.
Table 1
Leading exporters and importers in world merchandise trade 2000 Exports Imports World totals US$6 358 billion US$6 662 billion
% % United States 12.3 18.9 Germany 8.7 7.5 Japan 7.5 5.7 France 4.7 4.6 United Kingdom 4.4 5.0 China 3.9 3.4 Australia 1.0 0.8 Source: World Trade Organisation Annual Report 2001
Graph 2
Source: World Trade Organisation Annual Report 2001
Stimulated by the high levels of global economic activity in 2000, world trade in commercial services expanded by 5%. Exports were valued at US$1 415 billion and imports at US$1 400 billion. This was the largest increase since 1997.
Western Europe was the dominant region with US$629 billion in commercial service exports and US$601 in commercial service imports, however growth levels in the region have been very low since 1998.
The United States was the dominant country with commercial service exports valued at US$311 billion and commercial service imports of US$241 billion in 2000. China experienced the largest growth in with commercial service exports increasing 25% (US$30 billion) and commercial service imports increasing 14% (US$24 billion) in 2000.
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Terms of Trade
One very important aspect of trade in the global economy is how the terms of trade of developing and developed nations world are affected by globalisation.
The Terms of trade is the relationship between the prices of exports and the prices of imports. It is an index calculated as follows:
Example: Country X
Year Export price index Import price index Terms of Trade 1 100 100 100 2 110 120 91.66 In the example, import prices have increased relative to export prices and Country X cannot buy as many imported goods with the same amount of exports, a deterioration in the terms of trade has occurred.
The influence of the international business cycle can be seen in the changes in the terms of trade for developing and advanced nations (Table 2).
Table 2
Terms of trade (percentage change) Advanced economies Developing economies 1993 2.0 -2.7 1994 0.5 1.1 1995 0.4 3.4 1996 -1.0 1.6 1997 -0.6 -0.7 1998 1.7 -7.1 1999 0.1 5.0 2000 -3.4 6.2 2001 0.1 -1.5 2002 0.8 -1.7 Source: World Trade Organisation Annual Report 2000
The terms of trade for advanced economies (using ten year averages) increased about 1% between 1983 and 1992 while the developing nations fell on average about 3%. However (using ten year averages) the 1993-2002 figures indicated small increases for both developed (0.1%) and developing economies (0.3%).
Although trade volumes in developing countries are increasing, declining terms of trade can lead to higher levels of overseas debt and increased income transfers to advanced economies.
Review exercise 1
Click on the correct answer.
Review exercise 2
- Refer to the information in Graph 1 and calculate the gap in the growth rates in world trade between 2000 and 2001. Suggest reasons for the change in the world trade growth rate during this period
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Use the information in Table 1 and calculate the value of exports and imports for Australia in 2000.
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Refer to the information in Table 2.
Review exercise 3
Case study: The globalisation of services
A recent newspaper report indicated that the Internet Gaming Division of Publishing Broadcasting Corporation was preparing to locate overseas in Vanuatu, one of the world’s 54 online gambling jurisdictions. This decision was attributed to the proposed legislation by the Australian Federal government banning Internet gambling. Vanuatu has one of the lowest Internet gaming tax rates in the world compared to the enormous cash flows promised to investors. Global online gaming revenue has almost quadrupled in the past three years, from $US650 million in 1998 to $2.2 billion in 2000.
Source: Sydney Morning Herald 28/5/2001
Complete the following questions using the case study.
- How has technology contributed to the globalisation process of online gaming?
- What factors have enabled PBL to move their Internet Gambling Division overseas?
- Outline one reason for the Australian Federal government banning domestic online gaming.
More
World Trade Organisation 
Annual Reports
contain excellent information on world trade and
development.
The World Bank Group is an excellent
source of information on world trade issues.
The Sydney Morning Herald has many current
articles on international trade.
The Australian Department of Foreign Affairs and
Trade has excellent material on international trade and
the Australian economy.
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