Transcript International Business

International Business
Standard and Essential
Question
SSEIN1 The student will explain why individuals,
businesses, and governments trade goods and
services.
Essential Question:
How can globalization be both beneficial and harmful?
Where was your shirt made?
Item
1. Judy’s watch
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Made in…
Switzerland
What is Globalization?
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What does it mean to you?
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Means different things to different people
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a complex phenomenon which includes a
variety of topics and issues
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International Trade
Culture
Technology
Migration
Government
Globalization
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Worldwide interconnectedness and
interdependence of people, culture, country,
business, government
Some see it as a blessing, some
see it as a curse…
Driving Forces of Trade
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Technology
Driving Forces of Trade
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Trade Policies and Agreements
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Open economies
Trade/Globalization
Controversies
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Migration
Outsourcing/Off-shoring
Culture
Environmental Degradation
Trade Deficits
Global inequality: growth and poverty
Protectionism
Standard and Essential
Question
SSEIN1 The student will explain why individuals,
businesses, and governments trade goods and
services.
a.
Define and distinguish between absolute and
comparative advantage
b.
Explain that most trade takes place because of
comparative advantage in the production of a good
or service.
Essential Question- How does the use of comparative
advantage increase gains from trade for two or
more nations?
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Why do people trade?
Why do people trade?
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It’s in their best interests.
Let someone else produce something at
a lower opportunity cost.
Specialization – makes us more
productive and efficient!
Difference between absolute
and comparative advantage
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Absolute – can produce more of a product
than the other person or country.
Comparative – can produce it more
efficiently – at a lower opportunity cost.
Law of Comparative Advantage- nations
are better off when they produce goods and
services for which they have a comparative
advantage in supplying
Absolute and
Comparative Advantage
Household Chores
(Output per hour)
Betsy
Bert
Dishwashing
Sweeping
(# of sink loads)
(# of trash loads)
2
1
3
1
Absolute and
Comparative Advantage
Option 1
Work Together
Option 2
Divide Tasks
Option 3
Betsy Do All the Work
Option 4
Betsy Clean Garage
Bert Wash Dishes
Absolute and
Comparative Advantage
Option 1
Option 2
Option 3
Option 4
Work
Together
Divide Tasks
Equally
Betsy Do All
the Work
Betsy Sweep
Bert Wash
1 sink of
dishes
20 minutes
30 minutes
30 minutes
60 minutes
3 loads of
trash
45 minutes
180 minutes
60 minutes
60 minutes
TOTAL
65 minutes
180 minutes
90 minutes
60 minutes
Absolute and
Comparative Advantage
Comparative Advantage
Agricultural Production
Saratovia
Robland
Peanuts
Cheese
(in pounds per day)
(in pounds)
60
30
30
12
Standard and EQ
SSEIN1 The student will explain why individuals,
businesses, and governments trade goods and
services.
c. Explain the difference between balance of trade and
balance of payments.
 Essential Question How does balance of trade differ
from balance of payments?
Balance of Trade
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Balance of Trade- the relationship
between a nation’s imports and its exports
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Trade Deficit- a nation imports more than it
exports
Trade Surplus- a nation exports more than it
imports
US trade deficit
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We sell many goods abroad, but we buy more than
we sell.
Large trade deficit for many decades
2010, over $419 billion
Means Americans are spending more than we
produce.
Buying more from overseas means more dollars end
up in the hands of foreigners. Foreigners own a
bigger piece of our economy. They have bought
American land, stocks, bonds, etc.
How do we reduce the trade
deficit?
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Buy fewer imports
Sell more domestic goods abroad
Appreciate the exchange rate to make our
goods more expensive on the world market
and make other countries’ goods less
expensive by comparison.
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Would help reduce amount of our currency in the
hands of foreigners.
Danger of retaliation!
Balance of Payments
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Balance of Payments (BOP)- an
accounting of a country's international
transactions for a particular time period
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Any transaction that causes money to flow into
a country is a credit to its BOP
any transaction that causes money to flow out is
a debit to its BOP
Parts of the BOP
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Current Account- Transactions that
involve imports and exports
Capital (Financial) Accounttransactions that involve the purchase
of capital equipment, stocks, bonds, or
commercial real estate
Standard
SSEIN2 The student will explain why countries
sometimes erect trade barriers and sometimes
advocate free trade.
 a. Define trade barriers as tariffs, quotas, embargoes,
standards, and subsidies.
 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.
Essential Question: How do trade barriers protect some
within the economy and hurt others?
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What is a trade barrier?
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Trade restriction
Way to keep foreign products/services
out
What types of trade barriers
exist?
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Quotas (import quota) – limits the number
of goods coming into a country
Tariffs – tax on imports (customs duty)
Embargo- A prohibition by a government on
certain or all trade with a foreign nation
Subsidy- a government payment that
supports a business or market
Standards- prohibits or restrict the sale of
any product that does not meet specific
standards set by a government
Advantages of Trade Barriers
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PROTECTIONISM
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Help American businesses.
Protect American jobs
Protect national security
Protect “infant industries” – new ones that can’t
compete.
Disadvantages of Trade
Barriers
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Limits supply of goods
Increased prices for foreign goods
Trade wars – restrict imports and other
countries retaliate.
What kind of Trade
Restriction?
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China’s most favored nation trading status will be
taken away if Congress and the President agree that
the Chinese Government is guilty of human rights
abuses. All Chinese imports will experience a sharp
increase in taxes if China is no longer considered a
most favored nation.
Japanese auto firms agree to limits set in
Washington D.C. on the number of Japanese
automobiles that may be sold in the U.S.
What Kind of Trade
Restriction?
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U.S. State Department officials confirm that the
current Administration has decided to continue the
prohibition of all U.S. trade with Cuba.
Congress passes a law requiring that all foreigngrown vegetables sold in the U.S. must be
organically grown.
U.S. Farmers are allowed to obtain irrigation water
from federal dam projects at very low prices to grow
rice in the California desert, if they promise to sell
90% of the rice to buyers in Asia
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Read the Mexican Truck Controversy
The Mexican Truck
Controversy
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Should unsafe trucks from Mexico be allowed
into the United States?
Can a concern for truck safety be used to
discourage international trade?
Might you change your mind if you discovered
that the truck described was registered to a
Texas resident?
Would you change your mind if you knew that all
Mexican trucks had to meet U.S. safety standards
in order to cross the border?
Do you think that people from the Teamsters
Union would change their minds if they knew
about the safety standards?
Review of Trade Barriers
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How do trade barriers protect
some within the economy and
hurt others?
Standard and Essential
Question
SSEIN2 The student will explain why countries
sometimes erect trade barriers and
d. List specific examples of trading blocs such as the
EU, NAFTA, and ASEAN.
e. Evaluate arguments for and against free trade.
Essential Question: How is free trade both
beneficial and costly?
International Trading Blocs
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Best way to pursue comparative advantage,
raise general living standards, further
international peace.
Increase free trade
Help countries negotiate new trade agreements,
resolve disputes
Strengthen regional economies and
relationships.
Examples of trading blocs
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European Union – 1993
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Formed to get rid of trade restrictions and tariffs among members,
adopt uniform tariffs for nonmembers.
Originally the Common Market (1957)
Has a Parliament and council with representatives from each nation.
Has own flag, anthem, celebrates Europe Day May 9
Replaced individual currencies with a single currency – the euro.
(except for UK)
Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Poland, Portugal, Slovakia, Slovenia,
Spain, Sweden, Netherlands, UK)
Examples of trading blocs
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ASEAN – Association of Southeast Asian
Nations
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1967
Promote growth of the region (economically,
socially, culturally)
Promote regional peace and stablity (abide by UN
charter)
Assist each other in training, research and
education.
Collaborate in industry, agriculture and expansion
of trade.
ASEAN Member Countries
Examples of trading blocs
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NAFTA (North American Free Trade
Agreement)
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1994
Eliminate all tariffs and trade barriers between
Canada, Mexico, and US by 2009.
Largest free trade zone in the world.
Opponents worry about loss of American jobs b/c
of lower wages and fewer restrictions in Mexico.
Supporters claim it will create jobs in US because
of increased exports to Mexico and Canada.
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Statistics so far show increased trade, but not increased
jobs.
Pros and Cons of free trade
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Pros
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Best way to pursue
comparative advantage
Raises general standard
of living
International peace
Competition leads to
efficient production
Lower prices
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Cons
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Need to protect American
businesses and jobs
Need to protect new
industries
Protect national security
Unemployment in
countries with inefficient,
costly production.
Pros and Cons of
Protectionism
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Cons
Pros
 If the foreign country can do it
 Protects workers who
more efficiently, we benefit
would be hurt by
from lower prices they can
foreign competition.
offer.
 Less incentive for new
 Protects new
industries to be efficient and
industries
competitive while protected.
 Keeps vital industries
 Once a business has tariff
going that we would
protection it’s hard to take it
away.
need in event of war.
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Some industries claim to be
essential and get help when
they may not be.
Higher prices for imports
Job loss in export industries
that face retaliatory trade
barriers.
Standard
Standard- SSEIN3 The student will explain how
changes in exchange rates can have an impact on the
purchasing power of individuals in the United States
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 rate tables.
 d. Explain why, when exchange rates change, some groups
benefit and others lose.
Essential Question: How does the strength of the dollar
impact trading with other nations?
Essential Question
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How does the strength of the dollar
impact trading with other nations?
What is an exchange rate?
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Value of a foreign nation’s currency in
terms of the home nation’s currency.
How do changes in exchange
rates affect international trade?
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Appreciation- Increase in value of a currency
means the currency has become stronger.
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The country’s exports become more expensive in other
countries.
Other countries will import fewer products from that
country.
Foreign products will be less expensive for consumers in
the country with the strong currency, so consumers will
buy more foreign products.
How do changes in exchange
rates affect international trade?
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Depreciation- the value of a nation’s
currency decreases
The nation’s exports become less expensive
in other countries.
Other countries will import more from that
country.
Foreign goods will cost more in the country
with the weak currency, they will buy less
foreign products.
What about U.S.??
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Strong dollar – exports decline –
imports rise.
Weak dollar – exports rise – imports
decline
Exchange Rate Systems
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Fixed exchange rate – governments try to
keep the value of their currencies constant
against one another. They “peg” their
currency to the value of one central currency.
Flexible exchange rate – determined by
supply and demand. (US dollar)
MIX – most countries today use a mix of the
two
Balance of trade and the effect of
changes in the exchange rates
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Balance of trade – relationship between
a nation’s imports and its exports.
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Large difference = trade imbalance
Export more than import = positive trade
balance
Import more than export = negative trade
balance
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Nations want to maintain a balance of trade –
value of imports equal to value of exports.
Balancing Trade Protects
Value
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Balancing trade protects the value of
the currency.
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Imbalance means the value of the currency
falls.
Can correct this by limiting imports or
increasing the number or quality of
exports.
Remember
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Strong dollar = exports decline –
imports rise
Weak dollar = exports rise – imports
decline