Global Interdependence Chapter 26, Sect. 1 and Chapter 27, Sect.1

International Trade Solves the problem of scarcity Nations trade to obtain goods & services they cannot produce efficiently Eat fruit in the winter (U.S.) Buy a computer with an operating system & components developed in the U.S. (South Africa, Vietnam, etc.) Exports Goods sold in another country Imports Goods purchased from other countries

Four Reasons Nations Trade Comparative Advantage: The ability of a country to produce a good at a relatively lower cost than another country can Specialization Using scarce resources to produce those things that they produce better than other countries Can lead to over-production; producing more goods than can be consumed by all the people of a country Surplus exported to other nations

3. Create Jobs By exporting goods, companies can take larger orders for a good than just producing for their nation alone 4. Factors of production Based on natural resources that are needed where they cannot be accessed or do not exist Saudi Arabia (oil) Can be based on sources of capital or labor U.S. (Airplanes, weapons or educated workers)

Restrictions on Trade Tariff Quotas Tax on imported goods Goal is to make imports more expensive than similar goods produced domestically (cars) Quotas Limits on the amount of foreign goods imported Used when higher prices on imports do little to stop individuals from purchasing them

Other Barriers Embargos: restrictions on trade- governments prohibit companies from doing business with other countries. Sanctions: Usually financial in nature but can also halt or forbid trading with a country. Both are used to further political policies more than economic policies. Protectionist policies are designed to help domestic companies compete with cheaper goods from overseas.

IV: Free Trade Zones -Agreement b/w multiple nations to eliminate tariffs on goods & restrictions on number imports & exports NAFTA (North American Free Trade Agreement) 1994 Canada, U.S. And Mexico Eliminate barriers over time European Union (EU) 2002 28 member nations No trade barriers,23 EU nations use one currency “the Euro”

V: Globalization (interdependence) We live in an era where nations are dependent upon one another for: goods & services (products) natural resources and labor (factors of production) Trade b/w nations is a process of competition and cooperation

VI: Trade Agreements The cost of most trade barriers are higher than their benefits Fiscally and politically Most countries aim to achieve free trade Countries join together with a few key trading partners to increase trade WTO (World Trade Organization) Oversees trade among many nations of the world Negotiates trade rules Helps developing nations Settles trade disputes Critics say it favors corporations over nations

Balance of Trade Exchange rate: the price of a nation’s currency in terms of another nation’s currency Balance of trade: the difference b/w the value of a nation’s imports and it exports Trade surplus: positive balance of trade Trade deficit: negative balance of trade Can devalue a nation’s currency in terms of exchange rate Leads to surplus of money in the exporting nation Devalued currency can lead to decrease in incomes and employment in the importing nation Most nations of the world use a floating exchange rate, one that relies on supply and demand to determine the exchange rates between countries

VII: Benefits of Global Trade Positive: Businesses can make more profit Greater competition b/w businesses can lead to lower prices and more choices Negative: Competition may force out weak companies which can impact national economies (U.S. car industry) May lead to protectionism: countries place tariffs on imported goods

Outsourcing: When domestic companies Move parts of their production Over seas. Causes loss of jobs and unemployment.

VIII: Global Issues Growing economic inequality b/w rich and poor nations Warfare and famine often leads to refugees: people who leave their nation unwillingly Due to a lack of economic opportunity in developing nations, there is increased immigration: people leaving their nation willingly to live in an industrialized one United Nations (UN): since 1947 has promoted internationalism to help support economic development & foster parity b/w industrialized and developing world

Industrialized nations US, UK, Germany, Japan, Canada, France Have natural resources such as coal or iron (or access to it) Large industries Consume much of the world’s natural resources

Developing Nations Chad, Belize, Albania Often have few natural resources Cannot feed their population Manufacture few products Low life expectancy (40 yrs.) and literacy Saudi Arabia, Venezuela, India Possess great wealth of natural resources Many were once colonies of industrialized nations May be developing industry and human capital

Other international agencies A: In 1944, United States and other nations agree to rebuild global economy on free trade. B: IMF (International Monetary Fund) and the World Bank were created C: IMF: they foster monetary policy and operations World Bank: provides assistance to the third world developing countries to help reduce poverty and help standard of living. United Nations: created after WWII to foster world peace and economic prosperity.

Use your notes to answer Why do nations trade with each other? What is the difference between an import and an export? How does comparative advantage influence trade? How do tariffs and quotas restrict trade? What is NAFTA? Why do countries engage in free trade? Describe one positive and one negative aspect of global trade. Name 2 industrialized and 2 developing nations. What are the characteristics of these nations?

Question to think about. How does the exchange rate effect a country’s balance of trade? Answer: When a country’s currency increases in value (increase in the exchange rate) the currency is considered strong. That means that people in other countries find the exports from that country are expensive and trade tends to decline. If the currency depreciates in value then the opposite occurs. Exports are less expensive and trade increases for those goods.