Section 6.1 The Global Marketplace Marketing Essentials n Chapter 6 International Trade Section 6.1 The Global Marketplace

The Global Marketplace SECTION 6.1 The Global Marketplace What You'll Learn The interdependence of nations The benefits of international trade Government involvement in international trade Balance of trade Trade barriers Trade agreements and alliances

The Global Marketplace SECTION 6.1 The Global Marketplace Why It's Important The global marketplace makes all the people and businesses in the world potential customers, as well as potential employees or employers. Many familiar products are produced by foreign-owned companies that have operations in the United States. In this chapter you will explore the key concepts that govern international trade and help create the global marketplace.

The Global Marketplace SECTION 6.1 The Global Marketplace Key Terms international trade imports exports absolute advantage comparative advantage balance of trade tariff quota embargo World Trade Organization (WTO) North American Free Trade Agreement (NAFTA) European Union (EU)

The Global Marketplace SECTION 6.1 The Global Marketplace Defining International Trade International trade involves the exchange of goods and services between nations. Imports are goods and services purchased from other countries. Conversely, exports are goods and services sold to other countries. These exchanges occur between businesses but are controlled by the governments of the countries involved.

The Global Marketplace SECTION 6.1 The Global Marketplace Interdependence of Nations Most countries need to get some of their goods and services from other nations. This is called economic interdependence. There are two types of advantages in international trade: absolute comparative

The Global Marketplace SECTION 6.1 The Global Marketplace Absolute Advantage Absolute advantage occurs when a country has special natural resources or talents that allow it to produce an item at the lowest cost possible. Example: China produces close to 80 percent of all the silk in the world, which gives them absolute advantage.

The Global Marketplace SECTION 6.1 The Global Marketplace Comparative Advantage Comparative advantage is the value that a nation gains by selling the goods that it produces most efficiently. Example: U.S. businesses have a comparative advantage in producing technology related goods and services.

The Global Marketplace SECTION 6.1 The Global Marketplace Benefits of International Trade Consumers benefit from foreign competition that encourages the production of high-quality goods with lower prices. Producers can expand their businesses by conducting operations in other countries. Workers benefit from higher employment rates both at home and abroad.

The Global Marketplace SECTION 6.1 The Global Marketplace Government Involvement in International Trade All nations control and monitor their trade with foreign businesses. The U.S. government monitors imports through the customs division of the U.S. Treasury Department.

The Global Marketplace SECTION 6.1 The Global Marketplace Balance of Trade Balance of trade is the difference in value between a nation's exports and imports. A trade surplus occurs when a nation exports more than it imports. A trade deficit occurs when a nation imports more than it exports.

The Global Marketplace SECTION 6.1 The Global Marketplace Trade Deficit The U.S. trade gap in August 2000 was $29 billion. One effect of a trade deficit is a weaker dollar. Should that help or hurt U.S. exporters? Why?

The Global Marketplace SECTION 6.1 The Global Marketplace Trade Barriers A nation's government may impose trade barriers or restrictions when it wants to limit trade. There are three main types of trade barriers: tariffs quotas embargoes

The Global Marketplace SECTION 6.1 The Global Marketplace Tariffs A tariff (sometimes called a duty) is a tax on imports. Tariffs may be used to produce revenue for a country. Another type of tariff is a protective tariff, which is generally high. Its purpose is to increase the price of imported goods so that domestic products can compete with them.

The Global Marketplace SECTION 6.1 The Global Marketplace Quotas An import quota limits either the quantity or monetary value of a product that may be imported. Example: Japan placed a quota on its auto exports to the U.S. to improve trade relations.

The Global Marketplace SECTION 6.1 The Global Marketplace Embargoes An embargo is a total ban on specific goods coming into and leaving a country. Embargoes are usually used for political reasons. Example: The United Nations imposed an embargo on Iraq during the Persian Gulf War.

The Global Marketplace SECTION 6.1 The Global Marketplace Trade Agreements and Alliances Governments make agreements with each other to set up trade alliances that establish guidelines for international trade. Some alliances in the interest of worldwide free trade are: World Trade Organization North American Free Trade Agreement European Union

The Global Marketplace SECTION 6.1 The Global Marketplace World Trade Organization (WTO) The WTO is a global coalition of 135 governments that makes the rules governing international trade. The WTO was formed in 1995 as the successor to the General Agreement on Tariffs and Trade (GATT).

The Global Marketplace SECTION 6.1 The Global Marketplace North American Free Trade Agreement (NAFTA) NAFTA is an international trade agreement among the United States, Canada, and Mexico. It went into effect on January 1, 1994.

The Global Marketplace SECTION 6.1 The Global Marketplace European Union (EU) The EU is Europe's trading bloc. It was established by the Maastricht Treaty, which called not only for free trade among member nations, but also for a single European currency and a central European bank.

The Global Marketplace SECTION 6.1 The Global Marketplace International Trade Agreements and Alliances Depicted on this map are two major trading blocks or markets— NAFTA and the EU. How do these trade alliances foster free trade?

Reviewing Key Terms and Concepts ASSESSMENT 6.1 Reviewing Key Terms and Concepts 1. Explain the concept of economic interdependence of nations. 2. Provide an example of comparative advantage and absolute advantage for two different countries. 3. What benefits do consumers and nations derive from international trade? Slide 1 of 2

Reviewing Key Terms and Concepts ASSESSMENT 6.1 Reviewing Key Terms and Concepts 4. Name three types of trade barriers. 5. What is the common goal or purpose of the WTO, NAFTA, and the EU? Slide 2 of 2

ASSESSMENT Thinking Critically 6.1 What problems occur when trade between nations is not equal, as in the case of the United States and Japan? What measures could the United States take in order to reduce its trade deficit with Japan?

Favorable Balance of Trade 6.1 Graphic Organizer How Exchange Rates Affect the Balance of Trade Weak Currency More Exports Favorable Balance of Trade Strong Currency Fewer Exports Negative Balance of Trade

Marketing Essentials End of Section 6.1