1. Trade

2. United States Balance of Trade
So, why doesn’t the United States just export more goods, or import fewer goods, and balance out its trade?

3. Exports & GDP, % Annual Change 1950-2012

4. So Trade is important for an economy to grow
Past: countries imported goods that they could not produce themselves (e.g.: England & tea)
Present: countries import goods when it is cheaper to do so than to produce them domestically (such as the US and t-shirts)

5. Absolute Advantage
A country has an absolute advantage when it can produce a product more efficiently
Case in point: It costs $2 for Russia to make a tire, and $14 for the United States to do so
Russia has absolute advantage in tire production

6. Comparative Advantage
Comparative advantage refers to the ability of a country to produce a product at a lower opportunity cost
The opportunity cost of 1 Russian tire is 6 pounds of bacon
The opportunity cost of 1 American tire is 3 pounds of bacon
The US has a comparative advantage in tire production
Comparative advantage leads to TRADE

7. Outsourcing

8. Restricting Trade
Tariffs: taxes on the import of goods; makes imported goods more expensive
Quotas: limit on how many goods can be imported
Other barriers (mainly regulatory: inspections, licenses, etc.

9. Arguments for Protection
Group activity time!
In your group, review the appropriate section of the text (pgs ) about “Arguments for Protection”
For your section, you must:
Explain the concept
Give an example using a good/product NOT listed in the text
Give a counter argument in favor of free trade
6 minutes of work time… GO!

10. Free TRade
In general, international economics favors a move toward Free Trade, or trade without tariffs or quotas
Some examples include the World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA)