What is it supposed to do? Do you think it has been successful? Bell Work What is NAFTA? What is it supposed to do? Do you think it has been successful? Why or why not?

Today I will… Describe the restrictions governments place on international trade List the arguments of protectionists for placing restrictions on international trade Evaluate the advantages and disadvantages of trade agreements

Barriers to International Trade Chapter 17, Lesson 2 pp. 501 - 507

Restricting International Trade Tariffs A tax placed on imports to increase their price in the domestic market Protective tariff Tax that is high enough to protect less efficient domestic industries Revenue Tariff Tax that is high enough to generate revenue for the government without actually prohibiting imports

Restricting International Trade Tariffs have been used more for producing revenue than for protection Was the chief source of revenue for the federal government before the Civil War Can give protection to selected groups at the expense of others Adding a tariff to imported steel protects some jobs but hurts industries that use steel through higher prices

Restricting International Trade Quotas Limit placed on the quantities of a product that can be imported Used to reduce the total supply to keep prices high for domestic producers 1981 – quota on Japanese cars to keep auto prices higher for domestic manufacturers

Restricting International Trade Other Trade Barriers Embargos – prohibit the movement of goods to a country Inspections – imported foods are subject to a health inspections that are more rigorous than those given to domestic food Licenses – high license fees or lag time in issuing licenses can restrict trade Health Concerns – some European countries refuse to import GMO crops from the U.S. Nationalism and Culture – Preference for regional/traditional products to imports

Arguments for Protection Protectionists People who favor trade barriers to protect domestic industries Free Traders Prefer fewer or even no trade restrictions

Arguments for Protection Aiding National Defense Without trade barriers, a country could become so specialized that it would end up becoming dependent on other countries Things to consider Cost of maintaining domestic production Which industries would qualify

Arguments for Protection Promoting Infant Industries New or emerging industries should be protected from foreign competition Legitimate if temporary

Arguments for Protection Protecting Domestic Jobs Tariffs and quotas protect domestic jobs from cheap foreign labor Can provide temporary protection for some domestic jobs Important to keep pressure on threatened industries to modernize and improve

Arguments for Protection Keeping Money at Home Buying American keeps the money here instead of sending it to a foreign country Much of the money spent on imports comes back home through the sale of other exports

Arguments for Protection Helping the Balance of Payments the difference between the money a country pays out to, and receives from other nations when it engages in international trade Dollars that come back to the U.S. stimulate employment in other industries

Arguments for Protection Supporting National Pride France protects its wine and cheese industries The United States gave temporary protection to Harley-Davidson

Free Trade Movement Tariffs During the Great Depression 1930 – Smoot-Hawley Tariff Act Set high tariffs on imported goods to protect American jobs Prices of imports rose nearly 70% Other countries did the same and international trade nearly came to a halt – tariffs hurt more than they helped

Free Trade Movement Tariffs During the Great Depression 1934 Reciprocal Trade Agreements Act Reduced tariffs up to 50% if other countries agreed to do the same Most Favored Nation Status Gave other countries the same tariff reduction that the U.S. gives any other country with the same status If the US negotiates a lower tariff agreement with Canada, all other Most Favored Nations get the same new, lower rate too

Free Trade Movement The World Trade Organization An international agency that enforces trade agreements signed under GATT and settles disputes between them – 159 member nations today 1947 -General Agreement on Tariffs and Trade (GATT) -23 countries agree to reduce tariffs 1962 – Trade Expansion Act – gave the president the power to negotiate further tariff reductions Has contributed to greatly improved international trade

Free Trade Movement NAFTA An agreement to liberalize free trade by reducing tariffs between the U.S., Canada, and Mexico Proposed by President G.H.W. Bush and concluded by president Clinton in 1993 (bipartisan) Phased out tariffs by 2008 Made NAFTA the largest free trade area in the world Did result in the loss of some jobs, but created more jobs in other areas (net gain) Trade between the 3 countries has grown steadily since

Activity Options Math Practice Worksheet :Calculating the Cost of a Pair of Shoes Cartoon (next slide) What is the message of this cartoon Is this a fair commentary? Why or why not? Is this cartoon meant to support free trade or protectionism? What evidence is there to support your claim? Fair Trade Video and Question sheet (McGrawHill website)