THE U. S. IN A GLOBAL ECONOMY

>The chapter provides background for ongoing changes in the American economy that link it increasingly to economic events in the rest of the world
Increasing Importance of Trade
>[Instructor’s note: Trade patterns can be divided into two major types of exchanges: merchandise meaning goods which are tangible such as cars and chocolates and services meaning items which are intangible such as insurance or financial products]
>Figure 1.1 shows the trend in U. S. merchandise trade flows from 1869 to 2007; exports and imports were constant at about 7% of GDP until falling during the post-World War I decades but recovered to historic rates in the 1950s until taking off at a rapid pace of increase in the 1970s
-According to the Council of Economic Advisors merchandise exports were $1.3 billion or 9.1 % of GDP and merchandise imports were $2.1 billion or 14.8 % of GDP in 2008
-[Instructor’s note: according to the Bureau of Economic Analysis the merchandise exports and imports were 8.7% and 13.3% of GDP in 2010]
-Two recent divergences between the two streams of exports and imports as a percentage of GDP were the post world war II years when the American economy ran a trade surplus vastly out-producing the rest of the world and the period since 1980 when we have run a persistent trade deficit in merchandise imports
>The trend in both percentages has been steadily upward since 1970 marking the pace of globalization
>Although some economists early in the 20th century predicted “diminishing returns in international trade because efficient technology would spread to all nations and transportation costs would make trade ever more cost-prohibitive, modern technological advances have actually increased trade because production of individual components of major durable goods has spend to many different countries
-Thus to understand modern