Transcript International Trade

Warm Up #34
Why does the U.S. trade goods & services
with other countries? Explain why or not.
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Class Confession
We the Senior Class of 2016 will complete ALL of
our assignments to best of our abilities and
behave appropriately in class.
We will respect all faculty, staff, substitutes,
classmates, and especially Mr. Wilcox.
We will graduate on time May 20, 2016 and
become productive citizens in society.
NEXT
SSEIN1
Scaffold understanding of the standard(s) and/or element(s).
Paraphrase the standard(s) and/or element(s). Rewrite the
standard including synonyms or brief definitions in parentheses
and in a different color following the key terms found in step 1.
The student will be able to explain
(clarify) why individuals, businesses
(firms), and governments trade
(commerce) goods and services.
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International Economics
International Trading
Goods and Services
SSEIN1
The student will explain why individuals,
businesses, and governments trade goods
and services.
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International Trade
KEY CONCEPT
• Economic interdependence involves producers in one
nation that depend on producers in other nations to
supply them with certain goods and services.
WHY THE CONCEPT MATTERS
• Nations choose to produce some things and trade for
others. For example, Japan trades for the raw materials it
uses to produce automobiles. It then turns around and
trades the automobiles for other goods.
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Benefits and Issues of International Trade
KEY CONCEPTS
• Nation’s economic patterns are based on the
factors of production it has
–patterns change over time; for example, U.S.
originally agricultural
• Specialization occurs when narrow range of
products made
–increased productivity and profit
– Economic interdependence—reliance on
others for products not made
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Resource Distribution and Specialization
Example: Specialization
• Costa Rica exports bananas; has warm, wet climate
bananas need
– relatively low agricultural wages are beneficial—
production is labor intensive
• New Zealand exports wool, lamb, and mutton (sheep
meat)
– has temperate climate, water, open grasslands needed
for grazing
– has low population density, scientific breeding,
mechanized processing
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Specialization and Trade
A. When nations
specialize in
producing the things
they can make most
cheaply and easily
they benefit the most.
B. It depends on their
resources.
–i.e. Climate,
metals, etc.
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Why do nations participate in International trade?
1. To increase
WEALTH!
2. Consumers get
more choices.
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Absolute and Comparative Advantage
KEY CONCEPTS
Absolute advantage—nation’s ability to make product
more efficiently
– due to uneven distribution of production factors in
different areas
• Comparative advantage—ability to produce at lower
opportunity cost
– absolute cost of product not important, just opportunity
cost
•
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Absolute and Comparative Advantage
Example: Absolute Advantage
• Australia produces more iron ore and steel than
China with same labor
–Australia has absolute advantage
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Absolute and Comparative Advantage
Example: Comparative Advantage
• Law of comparative advantage—countries
gain when:
–produce items they are most efficient at
producing
–and are at the lowest opportunity cost
• If Australia’s ratio of steel to iron ore is 1:5 tons
and China’s is 1:3
–China has comparative advantage in steel
production
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Absolute and Comparative Advantage
Example: Advantages of Free Trade
• If China, Australia specialize, set trade ratio
steel to iron ore at 1:4
–China gets 4 tons iron ore for 1 of steel, got 3
before
–Australia gets 1 ton of steel for 4 of iron ore;
cost 5 before
• Specialization, trade raise nations’ production
ratios, world output
• Increased output is mark of economic growth
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International Trade Affects the National Economy
KEY CONCEPTS
Exports—goods and services produced in one
country, sold in others
• Imports—products produced in one country,
purchased by another
–Costs and benefits of international trade vary
by nation
–economists examine impact of exports and
imports on prices and quantity
•
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International Trade Affects the National Economy
Impact 1: Exports on Prices and Quantity
• If a country begins exporting product, foreign
buyers increase total demand
–demand curve shifts right, sets higher
equilibrium price
• Higher prices at home is offset by more jobs and
more income
–created by production expanded to meet
demand
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International Trade Affects the National Economy
Impact 2: Imports on Prices and Quantity
• Imports shift supply curve right, lower equilibrium
price
• Lower prices lead domestic producers to offer less
of product
– improve efficiency, worker productivity, customer
service
• Trade gives consumers increased selection of goods,
lower prices
• Gives producers new markets, chance for more
profits
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International Trade Affects the National Economy
The United States in the World Economy
• U.S. is world’s largest exporter; exports more services
than imports
– tourism, transportation, architecture, construction,
information systems
• Also world’s largest importer; imports more goods than it
exports
– oil and refined oil products, machinery, raw materials
• Main trading partners: Canada, China, Mexico, Japan
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Show What You Know!
Georgia Milestone Questions
International trade benefits ONLY nations that
Export more than they import
Import more than they export
Participate in trade associations
Trade according to the law of comparative advantage
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Show What You Know!
Georgia Milestone Questions
The ability of one trading nation to make a product more
efficiently than another trading nation is called
Comparative advantage
Favorable balance of trade
Voluntary export restraint
Absolute advantage
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Show What You Know!
Georgia Milestone Questions
If Country A decides to export some of its televisions to
Country B because the market for televisions in Country
A is already well satisfied, then the
Demand for televisions in Country B would decline
Demand for televisions in Country A declines
Price of televisions in Country A rises
Price of televisions in Country B rises
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The End.
Any Questions?
Any Comments?
Any Concerns?
Any Questions?
Any Comments?
Any Concerns?
Any Questions?
Any Comments?
Any Concerns?
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Warm Up #35
If we could not trade goods and services from
China, Japan, Canada, Brazil, and any other
country in the world what do you think would
happen economically for the U.S.?
Explain your answer.
5 minutes
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Class Confession
We the Senior Class of 2016 will complete ALL of
our assignments to best of our abilities and
behave appropriately in class.
We will respect all faculty, staff, substitutes, and
classmates, and especially Mr. Wilcox.
We will graduate on time May 20, 2016 and
become productive citizens in society.
NEXT
SSEIN1
You will be able to explain why countries sometimes erect
trade barriers and sometimes advocate free trade.
A. Define trade barriers as tariffs, quotas, embargoes,
standards, and subsides.
B. Identify costs and benefits of trade barriers over time.
C. List specific examples of trade barriers.
E. Evaluate arguments for and against free trade.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
_________________________________________
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Scaffold understanding of the standard(s) and/or element(s). Paraphrase
the standard(s) and/or element(s). Rewrite the standard including
synonyms or brief definitions in parentheses and in a different color
following the key terms found in step 1.
A. Define trade (commerce) barriers (obstacles) as
tariffs (taxes), quotas (proportions), embargoes
(restrictions), standards (requirements), and
subsides (payments).
B. Identify costs (expenditures) and benefits (profits)
of trade barriers over time.
C. List specific examples of trade barriers.
D. Evaluate (appraise) arguments for and against
free trade
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International Economics
Trade Barriers
SSEIN1
The student will explain why individuals,
businesses, and governments trade goods
and services.
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Barriers to Trade
KEY CONCEPTS
• Most nations pass trade limit laws to protect
domestic industries
• Laws lead to higher prices, economic retaliation
by other nations
• In long run, industries can only be saved by
becoming competitive
• Trade restrictions are basically a political issue
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Barriers to Trade
Types of Trade Barriers
• Trade barrier—law
limiting free trade among
nations; most mandatory
• Quota—limits on the
amount of a product that
can be imported
• Dumping—sale of
product in other country at
lower price than at home
– hurts domestic
producers; gives
consumers lower price
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Barriers to Trade
BMW
Types of Trade Barriers
• Tariff—fee charged for goods brought from
another country
• Revenue tariff—tax on imports, specifically to
raise money
–rarely used today
• Protective tariff—tax on imported goods to
protect domestic products
–raise price of goods more cheaply elsewhere
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Barriers to Trade
Types of Trade Barriers
• Voluntary Export Restraint (VER)—nation’s
self-imposed limit on exports
– VER used to avoid a quota or tariff
• Embargo—law that cuts most or all trade with a
specific country
• Informal trade barriers—licenses, environmental,
health, safety laws
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The Impact of Trade Barriers
KEY CONCEPTS
• Trade barriers may temporarily save domestic
jobs
–lack of competition promotes inefficiency,
higher prices
• Trade limits can lead to a trade war—succession
of increasing trade barriers between nations
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The Impact of Trade Barriers
Impact 1: Higher Prices
• Trade barriers raise prices or keep them high
– In 2000, U.S., Japan set tariffs on South Korean
semiconductor chips
– Korean and domestic chip prices went up in U.S. and
Japan
Mabach
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The Impact of Trade Barriers
Impact 2: Trade Wars
• Trade wars often result from disagreements over quotas
or tariffs
• Can result over other issues
– EU banned U.S hormone-treated beef, U.S. set 100%
tax on many EU foods
Angus Beef
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Arguments for Protectionism
KEY CONCEPTS
• Protectionism—use of trade barriers to protect
domestic industries
–Purpose to protect jobs, national security,
infant industries
*new industries unable to compete with larger,
established competitors
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Arguments for Protectionism
Argument 1: Protects Domestic Jobs?
• U.S. workers upset over jobs lost to countries
with cheaper labor
• Trade barriers generally protect inefficient
production, higher prices
• Laid-off voters influenced government to fund job
training programs
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Arguments for Protectionism
Argument 2: Protects Infant Industries?
• Protection expected to allow new industries to
grow until competitive
–This is used by developing nations to keep out
goods from developed nations
• Some critics say that freedom from competition
maintains perpetual (continuous) infancy,
therefore the need for perpetual (lasting) support
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Arguments for Protectionism
Argument 3: Protects National Security?
• National security affects industries considered vital
(absolutely necessary) for safety
– energy industry considered vital by most nations
• Political differences exist over which industries are truly
vital
– 2006 Dubai forced to abandon deal to operate several
port facilities
– critics doubted security concerns, worried over
interference with trade
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What is the primary reason for corporations leaving the U.S.?
Outsourcing
• Companies move
jobs to other
nations with lower
labor costs.
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What is a Trade Bloc?
A large free trade area
that is formed by one or
more tax, tariff, and
trade agreements
NAFTA
• North American Free Trade
Agreement eliminated all
tariffs and other trade
barriers between the U.S.,
Canada & Mexico
EU
• European Union has 27
nations and shares
currency called the euro.
ASEAN
• Association of Southeast
Asian Nations includes 10
nations eliminated tariffs in
this trading region.
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Closure Activity #30
Imagine that you have been asked to sign a
pledge to be patriotic by buying only products
made in the United States whenever possible.
Discuss with your partner, why you would or
would not sign. Use at least two economic
concepts explained in this lesson to support you
decision.
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Show What You Know!
Georgia Milestone Questions
The effect of trade barriers on domestic industries is to
Decrease motivation for efficiency
Increase motivation for efficiency
Raise workers’ pay
Subsidize imports
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Show What You Know!
Georgia Milestone Questions
The effect of trade barriers on domestic prices is to
Keep them stable
Lower them
Prevent inflation
Raise them
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Show What You Know!
Georgia Milestone Questions
Protective tariffs are one kind of
Embargo
Quota
Trade barrier
Trade war
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Show What You Know!
Georgia Milestone Questions
Which of the following is NOT a trading block?
EU
NAFTA
ASEAN
NATO
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Warm Up #36
Looking at the projector answer the
following questions on your Note
Taking Guide.
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Class Confession
We the Senior Class of 2016 will complete ALL of
our assignments to best of our abilities and
behave appropriately in class.
We will respect all faculty, staff, substitutes, and
classmates, and especially Mr. Wilcox.
We will graduate on time May 20, 2016 and
become productive citizens in society.
NEXT
SSEIN3
You will be able to explain how changes in exchange rates can have an
impact on the purchasing power of individuals in the U.S. and in other
countries.
A. Define exchange rate as the price of one nation’s currency in terms of
another nation’s currency.
B. Locate information on exchange rates.
C. Interpret exchange tables.
D. Explain why, when exchange rates change, some groups benefit and
others lose.
SSEIN1C
C. Explain the difference between balance of trade and balance
of payments.
Determine and define vocabulary. Identify key terms within the
standard. Define each term.
_______________________________________
_______________________________________
NEXT
Scaffold understanding of the standard(s) and/or element(s). Paraphrase
the standard(s) and/or element(s). Rewrite the standard including
synonyms or brief definitions in parentheses and in a different color
following the key terms found in step 1.
The student will explain how changes in
exchange (buying) rates can have an impact
(influence) on the purchasing (buying) power
of individuals in the U.S. and in other
countries.
Explain (clarify) the difference between
balance (stability) of trade (exchange) and
balance of payments (expenses).
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International Economics
Exchange Rates
SSEIN3
The student will explain how changes in
exchange rates can have an impact on the
purchasing power of individuals in the U.S. and
in other countries.
Explain the difference between balance of trade
and balance of payments.
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What is an exchange rate?
For every 1 Franc= 80 Yen
The relative values of
different currencies and
is the price of one
nation’s currency in
terms of another nation’s
currency.
Currency
• One nation
exchanges money
in return for goods
from another
nation.
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How is a nation normally paid when
goods are sold to another country?
In its own currency!
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When there is more demand for a nation’s
Why does the
exchange
rate
change?
products,
people
need
more
of that nation’s
currency to buy the products.
7/27
2015
Canadian
dollar
Euro
Value of $1 U.S.
(in foreign currency)
Value of Foreign
Currency
(in U.S. dollars)
.77
1.30
.90
1.11
Japanese
yen
123.22
.01
Mexican
Peso
16.28
.06
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What is the price of Jordan’s
(not underground economy) in pesos and
Euros?
Jordan’s $150 U.S.
$1 U.S. = 16.28 pesos
$150 U.S. X 16.28 pesos =
$2442 pesos
$1 U.S. = .90 Euros
$150 U.S. X .90 Euros =
$135 Euros
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Exchange rate change over time.
Value of $1 U.S. in
Canadian dollars
Value of $1 CAN
in U.S.
dollars
1997
1.39
.73
2011
.77
1.28
2015
1.30
.77
In 1997, the American $ was stronger, or worth more than the
Canadian dollar. Americans traveled to Canada, they could
exchange each American $1 for 1.39 Canadian Dollar, so they
could buy more goods. In 2011, it has changed. The US Dollar
lost value, but in 2015 the U.S. Dollar is stronger against the
Canadian Dollar.
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What is it when the American dollar loses value?
Depreciate
• When something
loses value
Appreciate
• Gains in value
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When the dollar is strong, or appreciates what happens?
A. Imports increase and are cheaper for
consumers to purchase.
B. Travel abroad is less expensive for
Americans
C. U.S. exports decline
D. U.S. trade deficit increases
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When the dollar is weak, or depreciates what happens?
A. U.S. exports increase and the prices of exports
decrease
B. Travel abroad is more expensive for American
tourists
C. U.S. imports decline and the price of imports
increases
D. The U.S. trade balance improves
E. Foreign investment in U.S. businesses
increases
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Balance of Trade
Trade Surplus
• When a nation exports
is more than its imports
Trade Deficit
• When a nation imports
is more than its exports
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Regional and World Organizations
World Trade Organization
• In 1944, Allied nations met to plan for recovery after
WWII, formed General Agreement on Tariffs and Trade
• World Trade Organization—formed in 1995 by nations
that follow the GATT
– negotiates, administers trade agreements; resolves
disputes
– monitors policies of over 150 members; gives support
to developing countries
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Balance of Payments
Credit
• Any transaction
that brings money
into a nation
Debit
• Any transaction
that takes money
out of a nation
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Show What You Know!
Georgia Milestone Questions
If the U.S. dollar can buy MORE in Ireland than the Euro
can buy in the United States, then in comparison with the
Euro, the U.S. dollar is said to be
Strong
Surplus weighted
Trade weighted
Weak
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Show What You Know!
Georgia Milestone Questions
With a strong U.S. dollar, American
Exporters benefit
Foreign exchange markets benefit
Importers benefit
Speculators benefit
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Show What You Know!
Georgia Milestone Questions
The World Trade Organization grew out of the recovery
from
The Great Depression
The Suez crisis
World War I
World War II
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Closure Activity #31
Do Page 96 in the
Georgia EOCT Coach
10 minutes
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Vocabulary Quiz & Test
Economic
Interdependence
Specialization
Resources
Absolute Advantage
Comparative Adv.
Exports/Imports
Trade Barrier
Quota
Dumping
Tariff
Revenue Tariff
Protective Tariff
Embargo
VER
Trade War
Protectionism
Outsourcing
Infant Industries
NAFTA
Trade Surplus/Deficit
Currency
Depreciate
Appreciate
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The End
Any Questions?
Comments?
Concerns?
NEXT