1. International Trade
Chapter 17

2. Goals & Objectives International trade importance.
Basis for international trade.
World output and international trade.
Trade restrictions & special interests.
Free trade movement and agreements.
Foreign currency & trade.
Trade deficits and solutions.

3. Absolute & Comparative Advantages
Regional Specialization: fruits, oil, grains, cocaine…
1. Exports: goods and services sold to other nations. Going out of the country.
2. Imports: goods and services bought. Coming into the country

4. The Basis of Trade
Absolute Advantage: producing a product more efficiently. OPEC and oil
Comparative Advantage: producing a product “relatively” more efficiently or at a lower opportunity cost. Mexico-China, Labor Costs.

5. The Gains From Trade
Specialization leads to greater world-wide output thereby increasing goods and services and the standard of living for all parties involved.

6. Barriers to International Trade
Tariffs and Quotas:
2 types of Tariffs:
a. protective tariff—protect American business from cheap foreign goods.
b. revenue tariff—government revenue, : 88% of federal government revenue: Duties, Imposts.

7. Protective Tariffs

8. Barriers to International Trade
Quotas: dumping:
A. Shrimp
B. Steel
C. Cheap Vehicles
2. Health Inspections: food
3. Licensing Requirements:
4. Health Issues & Immigration:
5. Nationalism & Culture:

9. Shrimp Imports & Quotas

10. Arguments for Protection
National Defense: Oil & weapons dependency.
Promoting Infant Industries: American start-up business to be protected from foreign competition.
Protecting Domestic Jobs: NAFTA, World Trade Agreements

11. One-Way Free Trade Agreement

12. Arguments for Protection
Keeping the Money at Home: Monetary Policy and the circulation of money for banks, consumers, producers, borrowers, lenders.
Helping the Balance of Payments: 9 Trillion dollar deficit to be paid out with interest.
Federal Tax Collections: Loss of Social Security, Medicare, Obamacare, & Income tax to the federal and state governments.

13. NAFTA Job & Tax Loss for U.S.

14. Free Traders
“Profits reward the efficient and hard working, while losses eliminate the inefficient and weak”
Tariffs : Smoot-Hawley Tariff 1930: Restrictive 70% duty.
Tariffs During the Great Depression: Reciprocal Trade Agreements 1934: 50% decrease in duty (tariffs). Most Favored Nation Clause.
Public Salary Tax & Public Revenue Acts

15. Low Tariffs = Public Salary Tax

16. World Trade Organization
1947: General Agreement on Tariffs & Trade (GATT)
1962: Trade Expansion Act: Presidential Power to negotiate treaty without the consent of the U.S. Senate approval.
1995: World Trade Organization:
1993: North American Free Trade Agreement:

17. 1947 GATT Tariff Decline

18. Financing International Trade
Foreign Exchange: Foreign exchange market; foreign currencies used to facilitate international trade.
Banks: Foreign & Domestic secure international loans and currencies. (U.S. involvement in WWI)
Foreign Exchange Rate: price or value one nation’s currency in terms of another nation’s currency.

19. Financing International Trade
3. Fixed Exchange Rates: rates or value of one nation’s currency was fixed or did not change. --20th century & Gold Standard used to determine a nation’s monetary value and credit. --U.S. Free Trade agreements or GATT changed international trade to a flexible rate. --France & other nation’s attempted to cash-out U.S. currency: Nixon leaves the Gold Standard.

20. FDR & Nixon Gold Policies

21. Financing International Trade
4. Flexible Exchange Rate: world monetary system enters a new era under Nixon:
Forces of supply & demand establish the value of one country’s currency.
5. Trade Deficits: value of imports exceeds value of exports. Caused by Flexible Exchange Rate.
--Strong Dollar equals lower GDP.
--Weak Dollar equals higher GDP

22. Future Trade with China?

23. Financing International Trade
6. Trade-weighted value of the dollar: strength of the dollar against foreign currencies. --Weak Dollar: High Inflation for American consumers. Weak Dollar great for American exporters/business. --Strong Dollar: Deflation and lower prices for American consumers. Strong Dollar bad for American exporters/business.

24. Trade Deficit & WTO

25. Trade Deficit Effects Devalues a nation’s currency on imports.
Inflation caused by devalued currency.
High unemployment due to devalued currency.
Lower GDP.
Weak economy.