2. International Trade
Voluntary Trade Creates Wealth

3. Reasons for International Trade
Possession of special resources
Raw materials, skilled labor, geography
Economic advantages
Comparative & Absolute Advantage
Politics
Trade organizations, agreements
OPEC, NAFTA

4. Possession of special resources
Unique Climate or Terrain
Hawaii – pineapple, Wisconsin - cheese
Valuable Raw Materials
Middle East – Oil, South Africa - Diamonds
Skilled Labor Force
U. S. – Engineers, India – Software writers
Capital Resources
Developed Countries, Tools - inventions
Favorable Geographic Location
Resources, Harbors, Transportation

5. International Trade Economic Advantages
Comparative Advantage
Do what you are best at.
Absolute Advantage
When best at compared to others.
ideas of David Ricardo

6. Hatfields vs McCoys Should they Trade?
Corn 8 hours
Cloth 10 hours
McCoys
Corn 15 hours
Cloth 12 hours
Who has an absolute advantage in CORN production?
Who has an absolute advantage in CLOTH production?
Who has a comparative advantage in CORN production?
Who has a comparative advantage in CLOTH production?
If the Hatfields and McCoys specialize & trade
will they both gain?

7. Trade Specialization raises standard of living
Specialization makes us interdependent

10. Top Trading Partners 2010 Merchandise Trade - Billions $ thru Oct
Country
Exports
Imports
Total
Percent
Canada
207.4
229.4
436.8
16.6
China
72.3
299.0
371.3
14.1
Mexico
134.0
190.0
323.9
12.3
Japan
49.9
98.0
147.8
5.6
Germany
39.5
67.7
107.2
4.1
U.K.
40.5
41.1
81.6
3.1
S. Korea
32.2
39.9
72.1
2.7
France
21.8
31.6
53.4
2.0
Taiwan
20.9
29.4
50.3
1.9
Brazil
29.3
19.7
49.0

11. Top Trading Partners 2008 Country Exports Imports Total Percent Canada
$225.2
$293.3
$518.5
17.7%
China
$61.0
$284.4
$345.5
11.8%
Mexico
$129.4
$186.2
$315.6
10.8%
Japan
$56.9
$119.4
$176.3
6.0%
Germany
$46.5
$83.3
$129.7
4.4%
U.K.
$46.6
$50.6
$97.2
3.3%
S. Korea
$30.5
$41.2
$71.7
2.4%
France
$24.7
$37.3
$62.0
2.1%
Saudi Arabia
$9.8
$49.6
$59.3
2.0%
Venezuela
$10.3
1.9%

12. Top Trading Partners 2007 Country Exports Imports Total Percent Canada
248.9
313.1
562.0
18.0%
China
65.2
321.5
386.7
12.4%
Mexico
136.5
210.8
347.3
11.1%
Japan
62.7
145.5
208.1
6.7%
Germany
49.7
94.4
144.0
4.6%
United K
50.3
56.9
107.2
3.4%
Korea, S
34.7
47.6
82.3
2.6%
France
27.4
41.6
69.0
2.2%
Taiwan
26.4
38.3
64.7
2.1%
Netherlands
33.0
18.4
51.4
1.6%

13. Top Trading Partners 2006 Country Exports Imports Total Percent Canada
$192.8
$254.8
$447.6
18.6%
China
$45.2
$235.8
$281.0
11.7%
Mexico
$112.3
$166.0
$278.3
11.6%
Japan
$49.6
$122.7
$172.4
7.2%
Germany
$34.0
$73.5
$107.5
4.5%
U.K.
$38.0
$44.6
$82.6
3.4%
S. Korea
$26.9
$38.3
$65.1
2.7%
France
$20.4
$30.8
$51.2
2.1%
Taiwan
$18.9
$31.9
$50.8
Malaysia
$10.9
$28.2
$39.1
1.7%

14. International Trade
Politics and Mechanics

15. Protectionism
The viewpoint that trade with a foreign country will do harm to the national economy.
Must “protect” country from foreign competition.
Difficult to apply standards of one country to another.

16. Can/should we apply our standards or moral viewpoint to other countries?
ethnocentrism

17. Protectionism Arguments
National Security
Self-sufficient in military & defense goods
Agricultural Self-sufficiency
Nation should feed itself
Employment Protection
Prevent job loss to imports

18. Protectionism Arguments
Infant / Emerging Industry
New industries need help until they become efficient
Wage Protection
Competition from “cheap foreign labor”
Diversified Economy
Don’t want to be dependent on single product

19. Trade Barriers Used to “protect” domestic economy
imposition of some sort of cost on trade that raises the price of the traded products
When two or more nations repeatedly use trade barriers against each other a trade war results.
Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency

20. Trade Barriers
Tariff
Tax on imports

21. Trade Barriers
Tariff
Tax on imports
Raises Price
Lowers Quantity

22. Trade Barriers
Quota
Limits the number of imports
Raises prices

23. Trade Barriers Embargo No trade at all Specific country
Cuba, North Korea
Specific products - imports/exports
Military Goods –Arms
ITAR - International Traffic in Arms Regulations (UN)
Endangered Species
Drugs, narcotics
Technology

24. Current US Trade Embargoes
Cuba
Iran
North Korea
Sudan
Syria
Burma/Myanmar
Belarus
Zimbabwe
Ivory Coast
Congo
State Dept list

25. Trade Barriers Product standards Quality control on imports
Customs and cultural mores
Electric power system
Driving on right side of road

26. Trade Barriers Subsidy Aid to domestic producers
Lowers cost to consumer
Preserves jobs

27. Most Favored Nation Normal Trade Relations 1998
Gives country the lowest trade barriers.
Reciprocal or bilateral agreement
WTO members
Exceptions are made
Political tool

28. Trade Organizations World Trade Organization (WTO)
International governing body – main treaty
Regional Organizations
NAFTA, European Union
World regions
Product Organizations
OPEC, Coffee Exporters

29. Current US Free Trade Agreements
NAFTA – Canada & Mexico
Australia
Bahrain
Chile
Costa Rica
Dominican Republic
El Salvador
Guatemala
Honduras
Israel
Jordan
Morocco
Nicaragua
Singapore
Pending
Peru
Columbia
Oman
Panama
South Korea
Need Congressional Approval

31. Foreign Exchange Exchange rate One dollar = 2 Euros
How much of one currency another buys
One dollar = 2 Euros
Units of Measure
One Mile = 1760 yards = 5280 feet

32. Foreign Exchange Fixed Exchange Rates Floating Exchange Rates
Bretton Woods – Gold Standard
Pegged or Tied Exchange Rates
Floating Exchange Rates
Supply & Demand in World Market
Stronger – can buy more units of currency
Weaker – can buy less units of currency
Change in relative position not good/bad

34. Dollar vs French Franc Current Exchange Rate 4.58 Date Ex Rate S/W?
Jan ’
Feb ’
Dec ’
Dec ’
Nov’
Oct’
Stronger
Weaker

35. Dollar vs British Pound
Current Exchange Rate
1 British Pound Equals $1.61
Date Ex Rate
Jan ’
Feb ’
Dec ’
Dec ’
Nov’
Oct ’
Stronger
Weaker

36. Dollar vs Euro Current Exchange Rate .6984 One Euro Equals $1.43
Date Ex Rate
Dec ’
Dec ’
Nov’
Oct ’
Weaker
Stronger

37. Dollar vs Yen Current Exchange Rate 90.936 Date Ex Rate Jan ’80 237.88
Feb ’
Dec ’
Dec ’
Nov’
Oct’
Weaker
Stronger

38. Dollar vs Mexican Peso Current Exchange Rate 12.82 Date Ex Rate
Jan ’
Feb ’
Mexico devalues it’s currency
Dec ’
Dec ’
Nov ’
Oct ’
Stronger
Weaker

39. Dollar vs Canadian Dollar
Current Exchange Rate $1.06
Date Ex Rate
Jan ’
Feb ’
Dec ’
Dec ’
Nov’
Oct ‘
Weaker
Stronger

40. Benefit from Strong or Weak $ ?
FARMERS
U.S. TOURISTS abroad
CLOTHES BUYERS
CAR BUYERS
AUTOWORKERS
ENTERTAINERS
JOB SEEKERS
WEAK
STRONG
DEPENDS