International Trade

Why Nations Trade Resources Distribution Unequal Resource Distribution Natural Resources Copper, iron, timber Human Capital Education, skill Physical Capital Roads, warehouses, machines Unequal Resource Distribution Most resources are not evenly divided around the world. Some countries have far more of one resource than others

The Need for Trade Production Possibilities Frontier Absolute Advantage Comparative Advantage Comparative Advantage and Trade

Imports/Exports and Specialization Specialization calls for each country to make those things in which it has a comparative advantage, thus allowing for more of everything to be produced

Trade Barriers Import Quotas Restricts the number or amount of product allowed into a country Voluntary Export Restraint (VER) To reduce chances of increased trade barriers Tariffs A tax imposed on incoming goods Other Barriers Health, safety, licenses Effects of Trade Barriers Higher Prices Trade Wars

Protectionism Goods may be prevented from entering a country to prevent the loss of jobs, protect growing industries, or for reasons of national security. For the same reasons, people may be prevented from entering a country because of unemployment or fear of loosing jobs.

International Agreements Most Favored Nation A nation that has reduced trade tariffs with the U.S. General Agreement on Tariffs and Trade (GATT) The first international agreement on trade World Trade Organization (WTO) An expansion of and more robust version of GATT European Union To compete better, most European countries formalized an agreement to eliminate trade barriers within the Union, and to adopt a singe currency North American Free Trade Agreement (NAFTA) Agreement between Canada, the U.S., and Mexico to reduce and eliminate trade barriers Other Agreements Many other agreements exist around the world to facilitate trade between groups of countries

Protests Against WTO The free trade movement pushed by businesses has also created a backlash by people who think that free trade agreements promote labor abuses and job losses

Exchange Rates Appreciation When the value of a currency goes up compared to another currency Depreciation Value of a currency goes down Strong Dollar/Weak Dollar When the U.S. Dollar is strong, it help to reduce the cost of imports, but weakens exports, and vise versa

Trade Balance Trade Surplus and Deficit U.S. Trade Deficit The total amount of exports minus imports U.S. Trade Deficit The U.S. has long had a negative trade balance, though some feel it is growing too large