1. Global Interdependence
Chapter 26, Sect. 1 and Chapter 27, Sect.1

3. International Trade Solves the problem of scarcity
Nations trade to obtain goods & services they cannot produce efficiently
Eat fruit in the winter (U.S.)
Buy a computer with an operating system & components developed in the U.S. (South Africa, Vietnam, etc.)
Exports
Goods sold in another country
Imports
Goods purchased from other countries

4. Four Reasons Nations Trade
Comparative Advantage: The ability of a country to produce a good at a relatively lower cost than another country can
Specialization
Using scarce resources to produce those things that they produce better than other countries
Can lead to over-production; producing more goods than can be consumed by all the people of a country
Surplus exported to other nations

5. 3. Create Jobs
By exporting goods, companies can take larger orders for a good than just producing for their nation alone
4. Factors of production
Based on natural resources that are needed where they cannot be accessed or do not exist
Saudi Arabia (oil)
Can be based on sources of capital or labor
U.S. (Airplanes, weapons or educated workers)

6. Restrictions on Trade Tariff Quotas Tax on imported goods
Goal is to make imports more expensive than similar goods produced domestically (cars)
Quotas
Limits on the amount of foreign goods imported
Used when higher prices on imports do little to stop individuals from purchasing them

7. Other Barriers
Embargos: restrictions on trade- governments prohibit companies from doing business with other countries.
Sanctions: Usually financial in nature but can also halt or forbid trading with a country.
Both are used to further political policies more than economic policies.
Protectionist policies are designed to help domestic companies compete with cheaper goods from overseas.

8. IV: Free Trade Zones
-Agreement b/w multiple nations to eliminate tariffs on goods & restrictions on number imports & exports
NAFTA (North American Free Trade Agreement) 1994
Canada, U.S. And Mexico
Eliminate barriers over time
European Union (EU) 2002
28 member nations
No trade barriers,23 EU nations use one currency “the Euro”

9. V: Globalization (interdependence)
We live in an era where nations are dependent upon one another for:
goods & services (products)
natural resources and labor (factors of production)
Trade b/w nations is a process of competition and cooperation

10. VI: Trade Agreements
The cost of most trade barriers are higher than their benefits
Fiscally and politically
Most countries aim to achieve free trade
Countries join together with a few key trading partners to increase trade
WTO (World Trade Organization)
Oversees trade among many nations of the world
Negotiates trade rules
Helps developing nations
Settles trade disputes
Critics say it favors corporations over nations

11. Balance of Trade
Exchange rate: the price of a nation’s currency in terms of another nation’s currency
Balance of trade: the difference b/w the value of a nation’s imports and it exports
Trade surplus: positive balance of trade
Trade deficit: negative balance of trade
Can devalue a nation’s currency in terms of exchange rate
Leads to surplus of money in the exporting nation
Devalued currency can lead to decrease in incomes and employment in the importing nation
Most nations of the world use a floating exchange rate, one that relies on supply and demand to determine the exchange rates between countries

12. VII: Benefits of Global Trade
Positive:
Businesses can make more profit
Greater competition b/w businesses can lead to lower prices and more choices
Negative:
Competition may force out weak companies which can impact national economies (U.S. car industry)
May lead to protectionism: countries place tariffs on imported goods

13. Outsourcing:
When domestic companies
Move parts of their production
Over seas. Causes loss of jobs and unemployment.

14. VIII: Global Issues
Growing economic inequality b/w rich and poor nations
Warfare and famine often leads to refugees: people who leave their nation unwillingly
Due to a lack of economic opportunity in developing nations, there is increased immigration: people leaving their nation willingly to live in an industrialized one
United Nations (UN): since 1947 has promoted internationalism to help support economic development & foster parity b/w industrialized and developing world

15. Industrialized nations
US, UK, Germany, Japan, Canada, France
Have natural resources such as coal or iron (or access to it)
Large industries
Consume much of the world’s natural resources

16. Developing Nations Chad, Belize, Albania
Often have few natural resources
Cannot feed their population
Manufacture few products
Low life expectancy (40 yrs.) and literacy
Saudi Arabia, Venezuela, India
Possess great wealth of natural resources
Many were once colonies of industrialized nations
May be developing industry and human capital

17. Other international agencies
A: In 1944, United States and other nations agree to rebuild global economy on free trade.
B: IMF (International Monetary Fund) and the World Bank were created
C: IMF: they foster monetary policy and operations
World Bank: provides assistance to the third world developing countries to help reduce poverty and help standard of living.
United Nations: created after WWII to foster world peace and economic prosperity.

18. Use your notes to answer
Why do nations trade with each other?
What is the difference between an import and an export?
How does comparative advantage influence trade?
How do tariffs and quotas restrict trade?
What is NAFTA? Why do countries engage in free trade?
Describe one positive and one negative aspect of global trade.
Name 2 industrialized and 2 developing nations. What are the characteristics of these nations?

19. Question to think about.
How does the exchange rate effect a country’s balance of trade?
Answer: When a country’s currency increases in value (increase in the exchange rate) the currency is considered strong. That means that people in other countries find the exports from that country are expensive and trade tends to decline. If the currency depreciates in value then the opposite occurs. Exports are less expensive and trade increases for those goods.