International Economic Course

Day 1: Course Introduction

Presented by:

Anh Duy Nguyen, PhD.

[email protected]
AD @ UEF 2021
1

Nguyễn Anh Duy, PhD

Tiến sĩ Kinh Tế
Trưởng Ngành Kinh Doanh Quốc Tế
Giảng Viên Khoa Kinh Tế ĐH UEF, Tp. HCM
Email: [email protected]

• Cử nhân ngành Quản Trị Doanh Nghiệp,

ĐH Toulouse 1 Capitole, Pháp
• Thạc sĩ ngành Kinh Tế Ứng Dụng - Kinh Tế
Công Nghiệp, ĐH Toulouse 1 Capitole, Pháp
• Thạc sĩ ngành Quản Trị Marketing, Viện quản
trị doanh nghiệp, ĐH Toulouse 1 Capitole,
Pháp
• Tiến sĩ ngành Kinh Tế Quốc Tế, ĐH Pau, ,
Bordeaux, Pháp
• Giảng dạy các môn học :
▪ KINH TẾ QUỐC TẾ
▪ KINH TẾ LƯỢNG
▪ MARKETING
▪ QUẢN TRỊ KDQT

1
1
 Grading Policy
Grades will be based on
– Final exam (50%): questions & answers
– Question /Issue Assignments
✓ Individual/ Group written reports = 20%

✓ Team based Case study presentation: 20 %

– In-class participation:10%
Textbook
Other Source:
Economic daily news papers. Dominick Salvatore, International Economics, 11th
edition, John Wiley & Sons, 2013.
International Economics, Paul Krugman, Maurice Obstfeld
and Marc Melitz , 9th edition, 2013
❑ Video clip
❑ Readings AD @ UEF 2021
3

Course Content and Deliverables

– Introduction, World Trade
Part 1 : International Trade Theory: Overview of Main Trade Theories:
The Mercantilists’ Views on Trade
Trade Based on Absolute Advantage: Adam Smith
Trade Based on Comparative Advantage: David Ricardo
The Heckscher-Ohlin Model
– The New Trade Theory:
Intra- Industry Trade theory
International Product Lifecycle & Porter’s Diamond model
Part 2: International Trade Policy
Trade Policy: (Tariffs, Subsidies, VERs) and Non-tariff barriers
– Economic Integration, FTA, ASEAN, EU, WTO, APEC
Part 3: Exchange Rate and IMS
– History of International Monetary System: IMF, World Bank,
AD @ UEF 2020 4

2
2
 After finishing this course, you will be
able to:
Describe some of the patterns and trends in
international trade
Explain the concept of comparative advantage/
factor endowment/ new development in trade
theories
Explain how economies of scale and diversity of taste
lead to gains from international trade
Explain why trade restrictions lower the volume of
imports and exports and lower our consumption
possibilities
Explain why we have trade restrictions even though they
lower our consumption possibilities AD @ UEF 2020 5

After finishing this course,

you will be able to (cont.):

Explain how the foreign exchange rates are determined

Explain the effects of changes in international exchange
rates
Describe global and regional integration trends
in international trade
Present the main FTAs, trading blocks in the
World: EV-FTA, RCEP, EU, NAFTA, AEC, CP-
TPP, WTO..
Explain the History of International Monetary System
AD @ UEF 2021
6

3
3
 What is International Economics?

– International Economics studies how a

number of distinct economies interact
with one another in the process of
allocating scarce resources to satisfy
human wants
– The study of international trade and
finance is where the discipline of
economics as we know it began

AD @ UEF 2019 7

What is International Economics?

What Is International Economics About?

– International Trade
The Gains from Trade
The Pattern of Trade
How Much Trade?
– International Finance
Balance of Payments
Exchange Rate Determination
International Policy Coordination
The International Capital Market
International Economics: Trade and Money
AD @ UEF 2019

4
4
 Why Take International Economics?

• economy is increasingly global / interconnected

• public is dangerously clueless of good policies:
▪ freetrade, open immigration, & sound money
• develops knowledge base for high income jobs

Figure 1.2 Average of Exports and Imports as

Percentages of National Income in 2015
Trade is more important in
smaller countries
– Why?

The average of exports and imports as a percentage of national

income, in 2015.
Source: OECD

AD @ UEF 2019

5
5
 Figure 1.2 Average of Exports and
Imports as Percentages of National
Income in 2015
Trade is more important in
smaller countries
– Why?
– A small country will usually not be
representative of the world as a whole.
– So it may have significant
advantages in the production
of some goods/services and
significant disadvantages in the The average of exports and
production of other goods/services imports as a percentage of national
– Such mismatches with the rest of the income, in 2015.
world usually lead to a lot of trade Source: OECD

AD @ UEF 2019

Figure 1.2 Average of Exports and Imports

as Percentages of National Income in 2015
Trade is more important in
smaller countries
– Why?
– In some cases, production costs
can be kept low only if the
volume of production is high.
– In such cases, producers in small countries
The average of exports and
may not be competitive unless they imports as a percentage of national
export a lot of their output income, in 2015.
Source: OECD
– This is yet another reason why Belgium
trades a lot more than the US
AD @ UEF 2019

6
6
Why Take International Economics?

AD @ UEF 2019 14

7
7
 Why Take International Economics?

AD @ UEF 2019 15

Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 16

8
8
 WTO

Class 0: Introduction & Overview 17

enjoyed

foreign-owned 50%
firms in China that reduction in the
exported over 70% corporate income
tax rate

over
1/3 sell more than 90% of
of Chinese their produce abroad.
manufacturing
exporters

total spending on
1.5%
these subsidies of GDP

9
9
 Why Take International Economics?

19

Interesting Quotes

“When goods don’t cross borders, armies

will.”
– Frederic Bastiat

“It is not from the benevolence of the

butcher, the brewer, or the baker that
we expect our dinner, but from their
regard to their own interest.” –
Adam Smith

AD @ UEF 2020

10
10
Who Who
win ? lose ?

Who Who
win ? lose ?

11
11
Class 1: State of Play I: Trade Wars 24

12
12
 Trade War

AD @ UEF 2020

Trade Wars, 2018-2020

• Outline
– Battles in the Trade Wars
• (Washing Machines & Solar Panels)
• Steel & Aluminum
• Intellectual Property / US-China Trade War
• (Cars)
• (Mexico migration)
• Targeting Companies
– Effects of the Trade Wars

Class 1: State of Play I: Trade 26

Wars

13
13
 US-China Trade War
• Based mostly on intellectual property
– IP mostly includes patents, trademarks,
copyrights, and trade secrets
– US (and others) claim that China
• Steals technology secrets
• Forces investors to turn over technologies in joint
ventures

Class 1: State of Play I: Trade 27

Wars

Trump Tariffs, 2018

Source: Amiti, et al. 2019.

Class 1: State of Play I: Trade Wars 28

14
14
Class 1: State of Play I: Trade Wars 29

Class 1: State of Play I: Trade 30

Wars

15
15
Trade War & Trade cooperation

AD @ UEF 2020

Introduction

16
16
 Interesting Quotes

US TRADE DEFICIT

Deficit is the difference

between export and import

17
17
US TRADE DEFICIT

PHOTO: For every dollar of goods the US exports to China, it buys back around $4 worth back from China. (Supplied:
Thomson Reuters)

Interesting Quotes

18
18
 Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.
Some Popular Sayings
– "When America sneezed, Japan and Europe
used to catch a cold”

– "No nation is immune to economic events that occur in far

away places”

– "Surely there is no closed economy in the real-world, except

the world economy!”
AD @ UEF 2019 37

Why Study International Economics?

Importance of International Economics:
– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 38

19
19
 Why Study International Economics?
Importance of International Economics:
– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 39

Interconnectedness &
fragility

• 300 ships were stuck

behind the Ever Given for
5 days (at a cost of USD
400mn per hour)

20
20
 Trade and other international economic
news articles per week 2010-2020
140

1-8/2015 3/18-1/20
120 Trade war
Greece
2011-2013
100 Crisis
Eurozone 6/23/2016

COVID-
Brexit

2-?/20
Crisis

19
80
Vote
60

40

20

0
1/4/10 1/4/11 1/4/12 1/4/13 1/4/14 1/4/15 1/4/16 1/4/17 1/4/18 1/4/19 1/4/20
Trade Other Int'l

Pandemic

World Recession

Class 0: Introduction & Overview 42

Source: FT 8/25/21 AD @ UEF 2021

21
21
Ways that countries interact
economically
– Policies that affect other countries
• Direct
– Trade policies (tariffs, quotas, FTAs, anti-dumping,…)
– Foreign aid
– Capital controls
– Exchange rate management
– Immigration restrictions
• Indirect

Class 0: Introduction & Overview 43

Ways that countries interact

economically
– Policies that affect other countries
• Indirect
– Subsidies (esp. agriculture)
» US farm subsidies > foreign aid
– Macro policies (monetary, fiscal)
» Exchange-rate policies
– Environmental policies
– Standards
» Labor
» Health & safety
» Norms

Class 0: Introduction & Overview 44

22
22
 Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 45

What Does the US Trade?

2019

Source: Economic Report of the President, Feb 2013, Table B-104.

Class 0: Introduction & Overview 46

23
23
 What Does the US Trade?
• US imports are much larger than US
exports
• US is a big…
– Exporter of agricultural products
– Importer of oil (but that’s been falling)
– Exporter and importer of capital goods (i.e.,
machines for making things)

Class 0: Introduction & Overview 47

Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 48

24
24
 Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2018 49

25
25
 Why Study International Economics?

Importance of International Economics:

– Give me an example of the interdependency
of todays world economies.

AD @ UEF 2021 51

What is International Economics?

International Economics can be divided into two
major branches:
o International Trade:
Why and What is traded? Microeconomic
Trade flows… approach, long-
Trade policy run focus
Economic integration
International factor movements
Immigration (movement of labor)

o International Finance
Financial flows between countries
Foreign direct investments
Macroeconomic
Exchange rates
approach,
Balance of payments problems
short-run focus 52
© AD at UEF

26
26
 What is International Economics?

Main Topics in International Economics:

International Trade Theory:
– Analyzes the basis of and the gains from
international trade

– Focuses on the microeconomic aspects of the

international economy

AD @ UEF 2019 53

What is International Economics?

Main Topics in International Economics:

International Trade Theory:
International Trade Policy:
– Examines the reasons for and the effects of
restrictions on international trade

– Analyzes the implications for International

Trade Theory of such restrictions

AD @ UEF 2019 54

27
27
 What is International Economics?

Main Topics in International Economics:

International Trade Theory:
International Trade Policy:
Balance of Payments:
– A summary statement of all the international
transactions of the residents of a nation with the
rest of the world during a particular period of
time, usually a year.
– Provides a statistical summary of the size of
international trade and international asset
ownership for a country
© AD at UEF 55

What is International Economics?

Main Topics in International Economics:

International Trade Theory:
International Trade Policy:
Balance of Payments:
Foreign Exchange Markets:
– The institutional framework for the exchange of
one national currency into another
– Part of the study of International Finance (or
Open-Economy Macroeconomics) that is
concerned with the macroeconomic implications
of the International Economy
© AD at UEF 56

28
28
 Why Study International Economics?

Importance of International Economics:

International economics has become more important with
increasing globalization and its backlash
Both international
trade and international direct
investments & capital flows have increased
dramatically during the past few decades
◼ At the beginning of the 21st century, nations are more closely
linked through trade in goods and services, through flows of
money, and through investment in each others’ economies than
ever before

◼Globalization has made citizens of all countries much more

aware than ever before of the worldwide economic forces that
influence their fortunes, and globalization is here to stay!
© AD at UEF 57

Trade Wars, 2018-2020

Outline
– Battles in the Trade Wars
(Washing Machines & Solar Panels)
Steel & Aluminum
Intellectual Property / US-China Trade War
(Cars)
(Mexico migration)
Targeting Companies
– Effects of the Trade Wars

Class 1: State of Play I: Trade Wars 58

29
29
 US-China Trade War
Based mostly on intellectual property
– IP mostly includes patents, trademarks, copyrights,
and trade secrets
– US (and others) claim that China
Steals technology secrets
Forces investors to turn over technologies in joint ventures

Class 1: State of Play I: Trade Wars 59

Trump Tariffs, 2018

Source: Amiti, et al. 2019.

Class 1: State of Play I: Trade Wars 60

30
30
Class 1: State of Play I: Trade Wars 61

Australia-China

Class 2: The State of Play II: Other 62

31
31
 Questions on Other:
Australia-China (Smyth)
What prompted the dispute between Australia
and China?
What has China done to Australia?
Has Australia retaliated with trade restrictions
against China?
How have Australian exporters and Chinese
importers adapted?
If trade has not fallen, has any harm been done?

Claas 1: State of Play I: Trade Wars 63

Buy American

Class 2: The State of Play II: Other 64

32
32
 China-EU Investment Agreement

Class 2: The State of Play II: Other 65

Questions on Other:
China-EU Investment (E&M)
What does the agreement do?
Why is this more a victory for China than for the
EU?
What is the only constituency in the EU that is
mentioned here as supporting the agreement?
How long did these negotiations take, and what
prompted them to finish when they did?

Claas 1: State of Play I: Trade Wars 66

33
33
 Trade War & Trade
cooperation

AD @ UEF 2020

Characteristics of World Trade

Value and growth of world

merchandise and services trade
Largest exporters and importers
Geographic patterns
Commodity composition

68
© AD at UEF

34
34
 Characteristics of World Trade

Let’s return to the long period of growth in world

trade: What caused the explosion of world trade?
▪ Reduction in trade barriers
▪ Advances in transportation and communication
technology
▪ Proliferation of trade agreements
▪ Widespread outsourcing of production activities
▪ Greater awareness of foreign cultures and
products

69
© AD at UEF

Leading Exporters in World Merchandise

Trade, 2014

70
© AD at UEF

35
35
Leading Importers in World Merchandise
Trade, 2014

71
© AD at UEF

2015-16
Slowdown
World
Recession

Lecture 1: Overview 72

36
36
 Pandemic

World Recession

Class 0: Introduction & Overview 73

Source: FT 8/25/21 AD @ UEF 2021

Overview of the World Economy

• Ways that countries interact
economically
– Trade (per CIA, 2017 est.)
• World exports: $17.31 trillion
(compare world GDP of $80 trillion)
(That’s at official exchange rates)
(Exports = 22% of GDP)
• World trade has grown faster than world GDP
most years
– But not during 2008-9, due to world recession
– Or during 2015-16
– But resumed in 2017
74

37
37
 75
AD @ UEF 2019

Overview of the World Economy

• See tables below for

– Who trades most?
– Who trades with whom?
– Share of trade in GDP
– US:
• What do we export/import?
• To/from whom?

76

38
38
 Who Trades the Most?
($ b. & % share, 2020)
Exporters Importers
Value Share Value Share
China 2,591 14.7 US 2,408 13.5
US 1,432 8.1 China 2,056 11.5
Germany 1,380 7.8 Germany 1,171 6.6
Netherlands 641 3.8 UK 635 3.6
Japan 723 3.6 Japan 635 3.6
World 17,583 100.0 World 17,812 100.0
Source: WTO, World Trade Statistical Review, 2021, Table A6

AD @ UEF 2021 77

Who Trades the Most?

(Excluding intra-EU-27)
($ b. & % share, 2018)
Exporters Importers
Value Share Value Share
China 2,591 18.1 US 2,408 16.5
EU-27* 2,209 15.4 China 2,056 14.0
US 1,432 10.0 EU-27* 1,958 13.4
Japan 641 4.5 UK 635 4.3
Korea, S** 512 3.6 Japan 635 4.3
World 14,334 100.0 World 14,634 100.0
*EU external only
**Source has Hong Kong, China 549, but 513 is re-exports
Source: WTO, World TradeClass
Statistical Review,
0: Introduction 2021, Table A7
& Overview 78
AD @ UEF 2021

39
39
How was the world
connected?

27

How was the world

connected?

28

40
40
 Global supply chains
evolution
• International supply chains were transformed from a set of regional
systems in 2000 to a China-centred global system by the mid-2010s.

• In Asia, China is dominant both in size as well as the central hub.

Japan and South Korea act as supporting hubs. Vietnam and
Malaysia are the rising stars.

• Among the factors driving changes in global supply chains today are
the rise in
production costs in China, automation, geopolitics and natural
disasters.

• Recent development towards “China + 1” (number of suppliers, 29

geographical spread & distance, short-term piling of inventories),
examples of re-shoring driven by political factors, risk analyses,
technological developments.

Who Trades the Most?

• See Economist from five years ago:
“Trading Up: Picking the world champion
of trade”
– China claimed to have surpassed US. True
only for goods, not goods + services
• But with time China will pass US in both
– China’s trade per GDP was much larger than
the US, but below world average
– Much of the value in China’s exports is
imported inputs, thus low “value added.”
Lecture 1: Overview 82

41
41
 Who Trades with Whom?
($ b., 2014, Intra- and inter-regional merchandise trade)
Destination:
Origin: North Latin Eur. Asia Africa Other
Amer. Amer.
North Amer. 1251 214 379 504 43 97
Latin Amer. 173 179 114 170 18 26
Europe 540 119 4665 738 221 447
Asia 1065 185 900 3093 207 428
Africa 39 29 201 152 98 20
Other 128 18 532 828 51 273
World 3195 744 6792 5485 639 1292

Source: WTO, International Trade Statistics, 2015, Table

I.4 Lecture 1: Overview 83

84
WTO, World Trade Report 2013

42
42
 85
WTO, World Trade Report 2013

1990

2011

86
WTO, World Trade Report 2013

43
43
 What Does the World Trade?
($ b. 2014 merchandise exports)

Value
All Products 17,797
Agriculture 1,765
Fuels & Mining 3,789
Manuf. 12,243

Source: WTO, International Trade Statistics, 2015, Table II.1

Note: This source is no longer published, and its replacement lacks these data.

Lecture 1: Overview 87

Key Issues/Challenges in World Trade

have often been
a) Raw materials’ prices
industrial countries buy them, refine them and sell back to
LDCs!
LDCs would like to behave as OPEC does!

b) Manufactured exports from LDCs

some countries already do have some major manufacturing
industries
c) Trade disputes
The concern used to be: should, for instance, Japanese exports
be restricted to prevent massive job losses in Western Europe
and North America or...? And now we are worried about job
losses to China and India! And next possibly to Africa…
Banana dispute between USA and EU!!
U.S. steel tariffs
Unfair value of Yuan…

88

44
44
 What is the
globalization?

Globalization is a process of interaction and

integration among the people, companies, and
governments of different nations, a process
driven by international trade and investment
and aided by information technology. This
process has effects on the environment, on
culture, on political systems, on economic
development and prosperity, and on human
physical well-being in societies around the
world.

45
45
What are some
examples of
Globalization’s
effects?

Long History of
globalization……

China, India, and Japan 15,000 years ago

Africa & South America thousands of
years ago
Greek & Middle East Merchants 5th
Century BC
Arab Empire, Holy Roman Empire &
Vikings
European Sea Trade 11th century forward
Colonization 1500-1900

46
46
47
47
Globalization= a process of interaction and integration
between people, companies, and governments of different
nations. It is driven by international trade,
investment, &information technology (like the
internet, satellite tv, etc).
Globalization has effects on:
❑The environment,
❑Culture,
❑Politics,
❑Economic development and prosperity,
❑And health & well-being

Globalization
Globalization - the shift toward a more
integrated and interdependent world economy
– The world is moving away from self-contained
national economies toward an interdependent,
integrated global economic system.

AD @ UEF 2018 96

48
48
Globalization

AD @ UEF 2018 97

Globalization

AD @ UEF 2019 98

49
49
 WHAT IS GLOBALIZATION 4.0
Globalization or globalisation is the process of
interaction and integration among people, companies,
and governments worldwide.
We are, put simply, living in the era of the Fourth
Industrial Revolution, the most recent wave of groundbreaking
innovation like artificial intelligence, autonomous vehicles, and
the Internet of Things

Globalization
Globalization -Means different things to different
people
Popular definitions :
1. The increasing world-wide integration of markets for goods,
services and capital.
2. Also the role of MNCs, IMF, WTO, World Bank.
3. Elsewhere: domination by United States.

Some see good, others bad

– Bad: reading by powell
– Good: reading by Bhagwati
Both make valid
points. Read to see
what they are. 100
© AD at UEF

50
50
 Globalization represents
free trade which promotes
global economic growth;

creates jobs, makes companies

more competitive, and lowers
prices for consumers

Free movement. This is a big advantage - people

can travel and the labor force can move.

51
51
Businesses cannot hide from
globalization…..

52
52
 Effects of the Pandemic on
Globalization
• Effects of the Pandemic on
Economies
– Travel halted
– Stock markets fall
– Factories shut down
– Supply chains interrupted
– Trade plummets
– Unemployment
– Reduced GDP
– Panic buying and shortages
105

AD @ UEF 2020

Effects of the Pandemic on

Globalization

106
AD @ UEF 2020

53
53
 Effects of the Pandemic on
Globalization

107

AD @ UEF 2020

What Is The Globalization of Markets?

Historically distinct and separate national
markets are merging and creating the “global
market”
– falling trade barriers make it easier to sell globally
– consumers’ tastes and preferences are converging on
some global norm
– firms promote the trend by offering the same basic
products worldwide
Give few examples ? Iphone, World Car, World
Film series…
© AD at UEF

54
54
 What Is The Globalization of Production?
Firms source goods and services from locations around the globe
to capitalize on national differences in the cost and quality of
factors of production like land, labor, energy, and capital
Companies can
– lower their overall cost structure
– improve the quality or functionality of their product
offering
Few examples ?

© AD at UEF

What Is The Globalization of Production?

© AD at UEF

55
55
What Is The Globalization of Production?

© AD at UEF

Globalization of
Production

56
56
 History of globalization

 First globalization: From the 1st Industrial Revolution to World War I

 Second globalization: From World War I to Great Depression
 Third globalization: From World War II to present

Source: Bordo, M. (2003), "Globalization in Historical Perspective", NBER Working

Paper

End of the third globalization?

 World trade (as percent of global GDP) was increasing until late 2000,
but has no longer been increasing since then.

출처: The Economist, 2017

57
57
 End of the third globalization?

 Global value chain and FDI also have no longer been

increasing in recent years

출처: The Economist, 2017

End of the third globalization?

 Non-tariff barriers have been on the rise in recent years

World European Union

WTO, Integrated Trade Intelligence Portal (I-TIP)

58
58
Source: Wikipedia

117
AD @ UEF 2020

GOOD BAD
BAD

GLOBALIZATION
????

59
59
 GOOD
• Worldwide market.

• Transfer of capital, technology,

management.

• Development of trade.

• Utilization of resources.

• Increase international relations.

BAD

• Creating Larger Gaps in Society. • Threats to social and cultural values

• Conflicts between classes. • Exchange rates uncertainties

• Environmental degradation • Less reliable products

60
60
 Pollution before vs after Coronavirus
quarantine.

NASA

121

BENEFITS and CHALLENGES of

Globalization in the World Economy

61
61
Globalization is considered a double-
edged sword.WHY ?

62
62