International Economics What do you already know about Global Economics? Scan code & answer

Global Economy Most countries are somehow involved in other country’s affairs (foreign policy) The United States in the World’s “Super Power” – measured by military, economic growth, and stability. Internationalism – involved in other world matters (we are not isolated). The U.S. no longer self-sustains itself (we are not subsistent) – we rely on other country’s to help maintain our economy.

Trade One way the U.S. is involved in international economics is through TRADE TRADE = exchange of goods, currency, resources We trade certain goods for other goods from other countries OR we exchange MONEY for goods from other countries. Foreign countries also exchange their goods or money for ours.

What is Trade? The exchange of goods/services/money between countries Exports – items produced by YOUR country to be sent to other trading countries Imports – items purchased by YOUR country that were made in another country and sent here for trade

World’s Largest Exporters 1 China $ 2,210,000,000,000 2013 — European Union $ 2,173,000,000,000 2012 est. 2 United States $ 1,575,000,000,000 2013 est. 3 Germany $ 1,493,000,000,000 2013 est. 4 United Kingdom $ 813,200,000,000 2013 est. 5 Japan $ 697,000,000,000 2013 est. 6 France $ 578,600,000,000 2013 est. 7 Netherlands $ 576,900,000,000 2013 est. 8 South Korea $ 557,300,000,000 2013 est. 9 Russia $ 523,275,000,000 2013[3] 10 Italy $ 474,000,000,000 2013 est. 11 Canada $ 458,700,000,000 2013 est. 12 Spain $ 458,000,000,000 2013 est. 13 Singapore $ 518,900,000,000 2013 est. 14 Saudi Arabia $ 376,300,000,000 2013 est. 15 Mexico $ 370,900,000,000 2013 est.

World’s Largest Importers 1 United States $ 2,380,000,000,000 2014 est. - European Union $ 2,112,000,000,000 2013 est. 2 China $ 1,950,000,000,000 2013 3 Germany $ 1,233,000,000,000 2013 est. 4 United Kingdom $ 782,500,000,000 2013 est. 5 Japan $ 766,600,000,000 2013 est. 6 France $ 659,800,000,000 2013 est. 7 South Korea $ 514,200,000,000 2013 est. 8 Netherlands $ 477,800,000,000 2013 est. 9 Canada $ 471,000,000,000 2013 est. 10 India $ 467,500,000,000 2013 est. 11 Italy $ 435,800,000,000 2013 est. 12 Spain $ 431,000,000,000 2013 est. 13 Singapore $ 463,800,000,000 2013 est. 14 Mexico $ 370,700,000,000 2013 est. 15 Russia $ 341,700,000,000 2013 est.

Balance of Trade Balance of Trade – the relationship between a country’s imports and exports Negative Trade Balance – occurs when you import more than you export – this can lead to a fall in one’s currency value Also called a Trade Deficit Positive Trade Balance – occurs when you export more than import Also called a Trade Surplus Balanced Trade – occurs when they equal out United States currently has a negative trade balance – however, a great part of that has to do with American Companies moving overseas, so in reality we are importing many American goods.

Balance of Trade Positive Trade Balance – occurs when you export more than import Also called a Trade Surplus Balanced Trade – occurs when they equal out United States currently has a negative trade balance – however, a great part of that has to do with American Companies moving overseas, so in reality we are importing many American goods.

What is our Balance of Trade What type of balance do we have with China? This reflects our exports to China and our imports from China Month Exports Imports Balance January 2015 9,552.0 38,158.4 -28,606.4 TOTAL 2015

Balance of Payments Balance of Payments - are an accounting record of all monetary transactions between a country and the rest of the world. These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers Without a balance of payments there can be a large gap between countries (1st World, 3rd World)

Reasons for trade Scarcity – limited supplies to meet unlimited wants and needs No country has all of everything Factors of production are limited! Trade occurs because one side has a COMPARATIVE ADVANTAGE in a certain product Comparative Advantage – lowest opportunity cost

Absolute v. Comparative Absolute Advantage tells us that one person is simply better at producing certain items than another Comparative Advantage tells us that people should SPECIALIZE in certain areas and then trade for the other items – both sides win

Benefits of Trade Greater consumer choice Better skilled labor (specialization) Lower opportunity cost Equalizes some of the unequal distribution of resources (some countries simply cannot produce products b/c they lack the resources) Better use of resources – less waste Lower labor cost (producer benefit)

Costs of Trade Unemployment Conflicts Dependences on another nation Fall of self-sufficiency Lower wages

Trade Simulation How do you feel about trade?