Voluntary Trade SS6E2 The student will give examples of how voluntary trade benefits buyers and sellers in Latin America and the Caribbean and Canada. Explain how specialization encourages trade between countries. Compare and contrast different types of trade barriers, such as tariffs, quotas, and embargos. Explain the functions of the North American Free Trade Agreement (NAFTA). Explain why international trade requires a system for exchanging currencies between nations.

Economic Growth SS6E3 The student will describe factors that influence economic growth and examine their presence or absence in Latin America and Canada. Explain the relationship between investment in human capital (education and training) and gross domestic product (GDP). Explain the relationship between investment in capital (factories, machinery, and technology) and gross domestic product (GDP). Describe the role of natural resources in a country’s economy. Describe the role of entrepreneurship.

What is Voluntary Trade? Voluntary Trade is an economic exchange in which all sides agree to participate because they expect to benefit. When a person agrees to trade a product or service for money, or another product or service, both sides benefit from the trade.

Wine vineyard in Alsace, France Specialization One reason that trade is so important is that many countries specialize in the creation of one or more products. Specialization is when people, businesses, or countries produce specific goods or services in order to produce more. Many countries specialize in the creation of one product or service, due to the resources they have (human resources, natural resources, etc.) available. Wine vineyard in Alsace, France

Specialization Encourages Trade No country can truly be self-sufficient (able to produce EVERYTHING they need), so countries rely on trade. Because of this, countries specialize in producing those goods and services that they CAN provide most efficiently. Most of that country’s human capital (training and education) and capital goods (machines and factories) are put into that specialized field. They then look for others who may need those goods and services so they can sell their products to those who need them. These countries would then participate in voluntary trade, which would benefit both countries. Example – France and Italy invest heavily in the production of textiles (a type of cloth or woven fabric).

Trade Barriers At times, governments of countries around the world may decide to regulate (control) trade by passing different rules/laws that impact trade. These can collectively be known as trade barriers. Trade barriers are anything that slows down or prevent one country from exchanging goods with another country. Examples of Trade Barriers: Tariff Quota Embargo

Trade Barriers Tariff: A tariff is a tax placed on goods when they are brought (imported) into one country from another country. Quota: A quota sets a specific amount or number of a particular product that can be imported or acquired in a given period Embargo: An embargo is when one country announces that it will no longer trade with another country in order to isolate a country and cause problems with that country’s economy.

NAFTA NAFTA: The North American Free Trade Agreement Agreement between the United States, Canada, and Mexico, creating a trilateral trade bloc in North America. Signed in 1993 and went into effect on January 1st, 1994. Meant to create “free” trade in North America (NO trade barriers).

NAFTA – Pros Free trade increases sales and profits for Mexico, Canada and the U.S.A., thus strengthening their economies. Lack of tariffs has allowed Mexico to sell its goods in the USA and Canada at lower prices. This makes Mexican products more competitive in these markets and increases Mexico’s profits as it tries to develop its economy. Free trade is an opportunity for the U.S. to provide financial help to Mexico by making jobs available in factories located there.

NAFTA – Cons Free trade has caused more U.S. job losses than gains, especially for higher-wage jobs. People work for lower wages and there are fewer labor regulations in Mexico, so American factories have moved across the border. Factories, called Maquiladoras, are built on the Mexican border and workers are hired there to make goods at a much lower wage than workers would be paid in the U.S.A. Mexico does not have as strict environmental regulations like Canada & U.S., so when factories move across the border, they are contributing to North America’s pollution problem. Some argue that our borders should be open like the European Union. That makes some people angry because they feel the borders should be closed.

Currency Money that is used as a way to trade goods and services. Examples: Paper Bills Coins Different countries around the world have their own form of currency. This can make trade difficult (since you don’t know how much your money is worth compared to other country’s money), unless there is a system for exchanging currencies.

Currency Exchange Without a system for currency exchange international trade would be very difficult. The Foreign Exchange Market, made up of large banks around the world, determines the exchange rates for different currencies. This allows a country to know the value of their money, compared to another currency. Example: 1 U.S. Dollar = 1.32 Canadian Dollar Many currencies, particularly in electronic exchanges, are converted to the U.S. Dollar when engaging in international trade. Many businesses have found doing trade in one currency (the U.S. Dollar) makes international trade easier. U.S. Dollar Canadian Dollar

Factors of Economic Growth Economic growth is the increase in the market value of the goods and services produced by an economy over time. There are many factors that can contribute to the economic growth of an area. The main four factors that influence economic growth are: Labor Capital Land Entrepreneurship

Labor and Human Capital The workforce of an area or country is usually referred to as labor. An investment in human capital (education and training) can allow the workforce to be better trained and/or more skilled as workers.

Human Capital and GDP Workers that are better trained may have access to more advanced technologies (factories, etc.), safer work environments, and better methods for completing their work, allowing them to produce products or perform services more efficiently. By producing more products and performing more services a country is able to increase their Gross Domestic Product (GDP). GDP is an estimate of the total market value of all final goods and services produced in the borders of ONE country in ONE year. Translation: estimate of the value of all the stuff a country makes in a year. Worker have education/training are healthy and have safe working conditions Workers are able to produce a higher quantity and higher quality goods and services More products are made and International trade increases GDP goes up

Literacy Rate One measure of human capital is the literacy rate of a country’s citizens. Literacy rate is the percentage of people who can read and write in a country. This statistic can be used to determine the level of education of people living in a country and is usually tied to the country’s GDP. Countries that invest more in the education of their citizens (more schools, training, etc.) normally have higher literacy rates and a higher GDP.

Effect of Literacy on Economics Real Economic Growth is the rate that a country’s economy is growing. The growth rate is usually lower for economies that are already really large. Literacy Rate and Economic Growth for Latin America and Canada: Canada Literacy Rate: 99% Real Economic Growth Rate: -0.3% GDP: $1.674 trillion GDP Per Capita: $46,200 Cuba Literacy Rate: 99.8% Real Economic Growth Rate: 1.3% GDP: $128.5 billion GDP Per Capita: $11,600 Brazil Literacy Rate: 90.4% Real Economic Growth Rate: -3.3% GDP: $3.135 trillion GDP Per Capita: $15,200 Information from the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/) for 2016.

Capital Goods (Resources) Goods such as factories, machines, and tools that workers use to make other goods.

Effect of Capital Goods on Economics Countries can also increase their economy by investing in capital goods. By investing in capital goods (creating new technologies, building new factories, machines, tools, etc.) countries are also able to increase their GDP. For each country below, the investment in capital is shown as a percentage of the country’s GDP. Canada Capital Investment: 22.2% Real Economic Growth Rate: -0.3% Cuba Capital Investment: 1.3% Real Economic Growth Rate: 6.8% Brazil Capital Investment: 15.8% Real Economic Growth Rate: -3.3% Information from the CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/) for 2016.

Natural Resources Natural resources are the raw materials used to support life and make goods. Examples: Trees Land Oil

Canada’s Natural Resources Oil is one of the major natural resources found in Canada. Canada has the 3rd largest proven oil reserves in the world (behind Saudi Arabia and Venezuela) and is the 5th largest oil exporter. Access to proven oil reserves can have a major impact on a country’s GDP. Other Canadian Natural Resources: Minerals (iron, silver, copper, nickel, gold) Rare earth elements Wildlife (fish) Coal Hydropower Forest products (timber) Agriculture (wheat, barley, oilseed, tobacco, fruits, vegetables, dairy products)

Entrepreneurship Entrepreneurs are people who have an idea for a business, are willing to take a risk, and combine human, natural, and capital resources to produce a new good or service. Entrepreneurs are only able to succeed in a more market system (closer to market than command on the economic continuum), where they have the freedom to control their own economic decisions.

Entrepreneurship in Canada Countries typically encourage or discourage entrepreneurship differently, depending on where they fall on the economic continuum. Canada encourages entrepreneurs! For example: In Canada, the overall freedom to start, operate, and close a business is strongly protected under Canada's regulatory environment. Starting a business takes an average of five days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days. Canada’s rating for Business Freedom = 81.9; the world average = 64.8 (2017).