Importance of Trade Relations

The Economic Effects of Foreign Trade Every importing and exporting transaction has economic effects. The difference between a country’s exports and imports is called balance of trade.

The Economic Effects of Foreign Trade The total economic effect of foreign trade is called balance of payments. Balance of payments measures the total flow of money coming into a country minus the total flow of money going out. Included in this are exports, imports, investments, tourist spending, and financial assistance.

The Economic Effects of Foreign Trade Some countries continually buy more foreign goods than they sell which results in a trade deficit. A trade deficit is the total amount a country owes to other countries as a result of importing more goods and services than a country is exporting. (e.g. U.S.A)

5 Types of Trade Relations Trade Agreements Trade agreements can occur between countries that band together to promote economic development on a worldwide basis or in a geographic region. Ex: OPEC

5 Types of Trade Relations 2) Economic Communities (or common market) organization of countries that bond together to allow a free flow of products. The group acts a single country for business activities with other regions. Benefits include: expanded trade with other regions in the world reduced tariffs for the member countries lower prices for consumers within the group expanded employment and investment opportunities Ex: ECOWAS

5 Types of Relations 3) Barter Agreements - The exchange of goods and services for goods and services with no money involved between two parties is called direct barter. - Countertrade is the exchange of products or services between companies in different countries with the possibility of some currency exchange. - Ex: PepsiCo, Pizza Hut, China.

5 Types of Relations 4) Free Trade Zones an area designated by a government for duty-free entry of non-prohibited goods

5 Types of Relations WTO ( World Trade Organization)

Activity Time Did everyone trade? Was everyone “better off” after the trading round? Look at the graph. Why does Canada(or any other nation) engage in trade with other countries? Why don’t we just ‘buy Canadian’?