Standard SSEIN1: Explain why we trade internationally. SSEIN2: Explain the arguments for and against trade

Trading People and organizations in different countries often trade goods and services because they value the things they buy more than they sell

What is trade? A transaction in which good, services or information are sold or purchased between two or more parties. International trade: the exchange of capital, goods, and services across international borders or territories.

What are the benefits of trade? Can help countries grow Reduce poverty Increases the total world output of goods and services

Types of Trade Barriers

Trade Barrier: Tariffs A Tax placed on imports Two Types: Protective tariff: tax that is high enough to protect less efficient domestic industries Revenue tariff: tax that is high enough to generate revenue

Trade Barrier: Tariffs Tariffs increase the cost of imports Provide protection for U.S. industries In 2002, President Bush placed Tariff on steel imports to protect the U.S. industry. It was lifted in 2003.

Trade Barrier: Embargo A ban on trade for political reasons Usually does not meet intended goals Harms a countries economy Enables countries a way to apply political pressure in a targeted way US placed an embargo on Cuba in 1962

Trade Barrier: Quota A limit by the government on quantities of a product that can be imported Leads to overall higher prices Protects domestic industry from foreign competition Example: The U.S. government limits the amount of sugar that can be imported into our country. 1.6 million tons can be imported. Annual consumption is ~11 million tons.

Trade Barrier: Standards Laws or regulations establishing health and safety standards for imported goods Makes entering a market difficult Ensures product safety. Examples: Toys cannot contain lead paint

Trade Barrier: Subsidies Government payments to businesses to encourage production Keeps inefficient businesses afloat and/or makes certain businesses rely on the government for assistance. Can be used to relieve some type of burden Example: Often given to farmer’s because of low market prices.

Two Arguments Free Traders: favor fewer or even no trade restrictions Protectionists: favor trade barriers that protect domestic industries

Trade Organizations

NAFTA North American Free Trade Agreement Established in 1994, it allows for free trade between Mexico, Canada and the United States.

EU European Union 28 member countries across Europe Began in 1950 with 6 countries during the ‘cold war’ Almost all use the same currency – the Euro, which started in 1999

ASEAN Association of South East Asian Nations 10 member countries Founded in 1967 to and aims to: Accelerate economic growth, social progress and socioeconomic evolution protect regional peace and stability

OPEC Organization of Petroleum Exporting Countries Established in 1960, it now has 12 member countries Considered a “cartel” – an organization that sets formal agreements to fix prices and dictate sales rules

Free Trade vs. Protectionism

The arguments- Which side are you on? The Issue Free trade Protectionism National defense Disadvantages of a smaller supply What happens when you can’t get foreign goods because of war? Promoting infant industries Protection will eventually be removed Industries need to gain strength before competing globally Protecting Domestic Jobs Best not to interfere Provide temporary protection Keeping money at home America dollars going abroad come back Keep money in the United States Balance of payments dollars return to stimulate employment Restrictions help balance