No Warm-up Take a copy of the unit 6 calendar from the front table and have a seat.

Why do nations produce only some goods and not everything their people need? How do nations deal with scarcity and obtain the goods that they don’t produce? What is NC good at producing?

Trade, Globalization, and Protectionism Unit 6

Resources Resource distribution - the factors of production are (1) natural resources (2) human resources (3) capital/money, but they are not evenly spread around the world. What are examples of natural resources? How could you measure the amount of human capital? → adult population, literacy rate, graduation rate, college graduation numbers, etc. What can capital/money be used for? → factories, machines, computers

Advantages Absolute Advantage - the ability to produce more of a product (than another country) using a specific amount of resources Comparative Advantage – the ability to produce a specific product more efficiently (with the lowest opportunity cost) than any other product. Opportunity Cost - the value of the best forgone conclusion that is given up when something is chosen

Law of Comparative Advantage Law of Comparative Advantage – the theory that a country should focus production on products where it has a comparative advantage. The Law of Comparative Advantage leads to Economic Interdependence (when countries rely on other countries for goods and services.) Why is a nation with abundant resources better off trading than being self-sufficient? Through trade, countries become much more interdependent. Name a benefit and a drawback of interdependence.

Globalization Economic Interdependence has been increasing for centuries, especially throughout the 20th century. This can lead to Globalization and Specialization. Globalization – a process by which the people of world are unified into a single society. This process is a combination of economic, technological, sociocultural and political forces. This process has accelerated since the end of the Cold War and the expansion of Information Technology (IT). Why does trade lead to job specialization? What would you do if you produce something that another country has a comparative advantage in? → get govt help, relocate, find a different field, specialize your product/work

Free Trade v. Protectionism Free Trade - market model in which trade in goods and services between countries flow unhindered by government-imposed restrictions. Free Trade Theory and Globalization have led to Trade Agreements (agreements between 2 or more countries that lowers trade barriers between countries) (picture: richard goyder is an australian businessman who advocated for free trade) Economic Interdependence can lead to Free Trade. North American Free Trade Agreement (NAFTA) – trade agreement between US, Canada, and Mexico. All of the countries have benefitted, but it has hurt some industries in different countries. For example, many small farmers in Mexico can no longer compete with large-scale American growers.

WTO and the EU WTO and EU - the world trade organization and the european union WTO established in 1948 as the GATT (general agreement on tariffs and trade). Its purpose is to negotiate trade agreements, and resolve trade disputes. EU is a group of countries in Europe that abolish trade/tariff restrictions among union members. Future of it now that England exited?

Free Trade v. Protectionism Protectionism – policy that restricts trade between nations, using tariffs (taxes) on imported goods and other restrictions. Trade Barriers – impediments to trade 2 Types of Trade Barriers Tariffs – tax on imported goods Import Quotas – limit on the amount of a good that can be imported Why do countries engage in protectionist policies? → protect jobs, protect infant industries, safeguarding national security, etc. How does protectionism hurt foreign policy and hurt global trade?

Effects of Trade Barriers increased prices on foreign goods trade wars (cycles of increasing trade restrictions between countries) Trade war example: Started with the Smoot-Hawley tariff in 1930, which raised the average tariff 50%. Economy began to move towards a depression. Other countries responded by raising tariffs against American-made goods. This escalated and deepened the worldwide depression of the 1930’s. What is the cartoon saying about the effect of trade wars? → they hurt both countries usually

Imports and Exports Exports – goods that are sold to other countries. Ex: The US sells computer chips to Jamaica Imports – goods that are bought from other countries. Ex: The US buys bananas from Honduras Trade Deficit – when a country’s imports outnumber their exports Trade Surplus – when a country’s exports outnumber their imports. Why is it bad to have a consistent or growing trade deficit? The US has a trade deficit right now → exact numbers for the deficit??? The goods and services deficit in the United States narrowed to USD 44.3 billion in December of 2016 from an upwardly revised USD 45.7 billion gap a month earlier and lower than market expectations of a USD 45 billion shortfall.

(see map in PDF)

Which major U.S. trading partners in 1950 were not major trading partners of the United States in 2011? A. Canada and Mexico B. Cuba and Venezuela C. Germany and the United Kingdom D. Mexico and India Why do you think the volume of trade is so different between the years 1950 and 2011?

Measuring trade Exchange rates (value of one nation’s currency compared with another’s) Strong v. weak currency Fixed exchange-rate = gov’ts try to keep the values of their currencies constant against one another Flexible exchange-rate = gov’ts let the rate be determined by the market (supply and demand) http://www.x-rates.com/calculator/?from=EUR&to=USD&amount=1