ECONOMIC UNDERSTANDINGS Specialization, Trade, Trade Barriers, & Exchange Rates Standard SS7E9

Standard SS7E9: The student will explain how voluntary trade benefits buyers and sellers in Southern and Eastern Asia. a. Explain how specialization encourages trade between countries. b. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargoes. c. Explain why international trade requires a system for exchanging currencies between nations.

Agenda Message: Agenda Message: Report Cards go home next Monday. CDA- IV Study Guides go home March 24 th. Standard: Standard: Explain how specialization encourages trade between countries. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargoes. Essential Question for Tuesday March 15 th : Essential Question for Tuesday March 15 th : Briefly describe the three types of Trade Barriers. Warm-up: Why is specialization important in trade between countries? Today We Will: 1. Start Trade Barriers

E.Q. Answer for Tuesday March 15 th E.Q. Answer for Tuesday March 15 th : Tariff Tariff – means a tax on imported goods or products, usually making them more expensive. Quota Quota – means setting a limit on the number of goods or products that can be imported into a country, usually making these products more expensive. Embargo Embargo – Stops trade between countries altogether. Warm-Up Warm-Up: Countries specialize in what they produce best and most efficiently. They then buy (or trade) for goods and products from other countries that they need.

Specialization Helps Everyone Specialization is where countries produce those things that they make best and trade with others for the things they need. Every country has different natural resources, human capital, capital, and entrepreneurial resources.

Countries specialize in what they do best. Specialization is an efficient way to work, and the cost of items produced is much lower as a result of specialization. One example of specialization is trade between Australia and Japan. Japan has few natural resources, however, it has developed industries like automobile manufacturing.

Japan buys many of the raw materials from Australia, a country rich in natural resources. Japan “specializes in” auto manufacturing. Australia “specializes in” exporting raw materials. In the end, Australia imports lots of cars from Japan! Japan “specializes in” auto manufacturing. Australia “specializes in” exporting raw materials. In the end, Australia imports lots of cars from Japan!

Barriers to Trade Countries sometime set up trade barriers to restrict trade. Why? The reason is that they want to produce their own goods and sell them in their own country. These trade barriers include tariffs, quotas, and trade embargoes.

Tariff tariff tax A tariff is a “tax” placed on imported goods. Tariffs cause the consumer to pay a higher price for an imported item, increasing the demand for a lower-priced item produced domestically.

Quota quota limit, on the amount of goods or products that can be imported into a country A quota is a “limit, on the amount of goods or products that can be imported into a country”. Quotas will often cause shortages that ultimately force prices to rise.

Trade Embargoes Trade embargoes “ ” Trade embargoes “forbid or stops trade completely” with another country.

Examples of Trade Barriers  In the 1980’s, quotas were set restricting how many Japanese cars could be imported into the U.S. to protect the U.S. car manufacturing industry.  India imposes tariffs on agricultural products in order to protect its own farming industry.

Examples of Trade Barriers cont.  Beginning in 2001, the U.S. imposed tariffs on steel imported from China, India, and several other nations to protect the U.S. steel industry.  In 2005, the U.S. imposed temporary quotas on certain types of cotton clothing from China in order to protect U.S. clothing manufacturers.

Examples of Trade Barriers cont.  After the Vietnam War, the United States imposed a trade embargo against Vietnam to pressure the Vietnamese government to provide information on Americans missing in action (MIA’s) during the war.

In order to protect a nation’s car manufacturing industry from foreign car producers, the government charges the importer a tax for each imported car. This trade barrier is designed to make the imported car more expensive and encourage people to buy a locally made car. This is an example of what type of trade barrier? 1. Subsidy 2. Tariff 3. Quota 4. Embargo

Answer: b. Tariff Because a tariff is a “tax”

China’s government was concerned about recent military actions from North Korea. They decided to halt all food exports going to North Korea. This halt to trade is an example of what type of trade barrier? 1. Tariff 2. Boycott 3. Quota 4. Embargo

D. Embargo Because an embargo halts or stops trade all together