Transcript Economics: International Trade

Economics: International
Trade
International Trade
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Warm-up
What do you think the term global
interdependence means?
Answer: nations around the world are connected
and depend on each other.
In what ways are nations interdependent?
Answer: Nations depend on each other for
resources, workers, assistance for things such as
national disasters, we share the same
environment, war & conflict resolution etc.
The Global Economy
• Participants in the global economy range from
individuals who may invest directly in foreign
companies or real estate to giant multinational
corporations that employ tens of millions of
workers. (Richard Remy 732).
• Do you or your parents drive a foreign car?
Check the labels of your shirts and shoes. Where
were they made?
• We are participants in the global economy too!
Global Economic Activities
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Investments
Banking and financial services
Currency exchange
Real Estate
• TRADE!!!!!!!!!!!!!!!!!!!
International Trade
• Why did the United States emerge as an
economic giant after WWII?
International Trade
• The U.S. did not experience the
devastation and destruction like those
nations in Europe and Asia.
• These nations depended on the U.S. for
goods and resources.
• Therefore, we became the prominent actor
in international trade!
Purpose of Trade
• 1. To obtain goods and services that a nation
cannot produce themselves. Example: The U.S.
imports industrial diamonds from other countries
because we do not have deposits of such
minerals.
• 2. Comparative advantage- Each country
should produce those goods it can make more
efficiently and purchase those that other nations
produce more efficiently.
Purpose of Trade
• 3.To Create Jobs- The global market for
cars is greater than the market in the U.S.
alone. There will be more jobs if American
automakers can sell their products abroad.
Comparative Advantage
• "If a foreign country can supply us with a
commodity cheaper than we ourselves can
make it, better buy it of them with some
part of the produce of our own industry,
employed in a way in which we have some
advantage. " (Book IV, Section ii, 12)
• Adam Smith, Wealth of Nations
• Source: http://internationalecon.com/v1.0/ch40/40c000.html
Comparative Advantage
• If our country can produce some set of goods at
lower cost than a foreign country, and if the
foreign country can produce some other set of
goods at a lower cost than we can produce them,
then clearly it would be best for us to trade our
relatively cheaper goods for their relatively
cheaper goods. In this way both countries may
gain from trade.
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Source: http://internationalecon.com/v1.0/ch40/40c000.html
Barriers to International Trade
• What problems do you think international
trade can cause for domestic companies
and workers?
• Answer: Loss of jobs, decline in business
• What pressure does this put on our
representatives in government?
• Answer: It forces them to make regulations
on imported goods.
Restrictions on International
Trade
1. Tariffs- taxes placed on imports to increase
their price in the domestic market.
• Example: The U.S. threatened to impose tariffs
on China if they did not end the illegal copying
of intellectual property (ideas) like music and
video compact discs.
2. Quotas- Limits on the quantities of a foreign
product that may be imported.
What do you suppose the cartoonist is
trying to tell his readers about free trade?
Trade Restrictions
3. Dumping- selling products in another
country below their manufacturing cost or
below their domestic cost in order to drive
other products out of a market.
What do you think will happen once the
competition is destroyed?
Answer: Prices will increase!
Trade Restrictions
4. Non-tariff barriers- very strict health, safety, or
other regulations that must be met before a
foreign product can be offered for sale in a
county.
5. Embargoes- to totally ban trade with a specific
country
Financing Trade
• Balance of Trade or Balance of
Payments- the difference between the
value of a country’s imports and exports.
• This measures the flow of money in and
out of a country.
• A country has a trade deficit when the
value of products it imports is greater than
the value of the products it exports.
What term best represents this
political cartoon?
Assessment
• Without using your notes, explain each term
below.
• Comparative Advantage
• Tariffs
• Quotas
• Embargoes
• Trade deficit
• Non-tariff barriers