1. Topic 10: Trade, Development, & Globalization

2. Why do Americans buy so many goods from overseas?
Wouldn’t it make more sense to produce everything we need ourselves?
Answer lies in factor of production & scarcity.

3. 10.1 Why Nations Trade
Factors of Production

4. 10.1 Why Nations Trade
Factors of Production

5. Why Nations Trade 10.1
Because we can't produce all goods with our limited resources, we as a country need to obtain them somehow.
Trade
What factors determine what countries produce?

6. Natural Resources

7. Capital & Labor

8. Capital & Labor

9. Unequal Resource Distribution

10. Specialization & Trade
Unequal distribution of resources creates a need for specialization.
Nations produce only certain goods & services
Then through trade they export g&s they make to another country for sale & import g&s bought from another country

11. Absolute & Comparative Advantage
What if a country had the resources and means to be self-sufficient. Why trade?
...Because trade makes everyone better off
Absolute advantage: when a person or nation can produce more of a given product than another person or nation
Comparative advantage: when a person or nation can produce a product more efficiently

12. Absolute Advantage
Who has an absolute advantage in producing t-shirts?
Who has an absolute advantage in producing birdhouses?
Who should make what?
To answer that, look at comparative advantage.

13. Comparative Advantage
Law of comparative advantage: a nation is better off when it produces goods & services for which it has a comparative advantage
Then use the money they earn selling it to buy the things that can’t produce as efficiently
After trade, both parties are better off.

14. Comparative Advantage
After trade, both parties are better off.

15. Growing Interdependence
There is a shared need of countries for the resources, goods, services, labor, & knowledge supplied by other countries
When one country hurts/grows it affects other economies as well

16. US & its Trading Partners
The US exports more goods than any other country except China
US excels in technologically sophisticated goods (software, chemicals, & medical testing supplies)
US cultural exports dominate as well

18. US & its Trading Partners
US is world’s top importing country
Specialization has a huge impact on employment (can be positive or negative)

19. 10.2 Trade Barriers & Agreements
A trade barrier (trade restriction) is a means of preventing a foreign product or service from freely entering a nation’s territory
Tariffs: tax on imported goods
Customs duties
Quotas: import quotas place a limit on the amount of a good that can be imported
Many are now illegal under international trade laws
Sanctions: actions a nation (or group of nations) may take to punish or pressure another nation
Ex. 1960, Cuba trade embargo
Other barriers
Government may require licenses
Health, safety, environmental regulations

20. Effects of Trade Barriers
Higher prices for foreign goods
This can help domestic producers compete with foreign firms
Consumers can lose out
Trade Wars
Barriers might fuel international conflict
Trade wars are cycles of escalating trade barriers
1930, Congress passed Smoot-Hawley Act, raised average tariff rate to 50%
… Countries responded by raising tariffs on American goods
This trade war decreased foreign trade and worsened the depression

21. Protectionism
The use of trade barriers to shield domestic industries from foreign competition
Arguments for Protectionism
Protects jobs
Protects infant industries
Safeguard national security
If war breaks out, US needs an uninterrupted supply of steel, energy, etc.

22. Founded in 1995 with the goal of making world trade more free
Trade Agreements
Free Trade (opposite of protectionism)
Lowering or eliminating trade barriers between nations
Argue that free trade is the best way to pursue comparative advantage, raise living standards, & further cooperation
World trade Organization (WTO)
Founded in 1995 with the goal of making world trade more free

23. European Union (EU) Slowly developed over decades
Eliminates tariffs & trade restrictions
19 of 28 members use the euro
(Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain)
The Euro makes the movement of goods & people more efficient
BUT economic troubles in one country can cause the value to depreciate

24. 10.3 Exchange Rate & Trade
International trade is more complex than trading within your country because of different currencies
Exchange rate: the value of a nation’s currency in relation to a foreign currency
Changes constantly
Appreciation: an increase in the value of a currency
Depreciation: A decrease in the value of a currency (weakening)

26. 10.4 Development
The process by which a nation improves the economic, political, & social well-being of its people
Developed Nations: high average material well-being
Less Developed Countries: low levels of material well-being
Newly Industrialized Countries: has made great progress towards developing their economies

28. Indicators of Development
Per capita GDP
Energy use
Workforce
Agricultural work? Sustenance farming?
Consumer goods
Social indicators
Literacy rate
Life expectancy
Infant mortality rate

29. Literacy Rates

30. Life Expectancy

31. Infant Mortality Rate
Per 1000 births

32. 10.5 Growth, Resources, & Development
Things like illiteracy & poor nutrition hinder development
Population growth can also be a serious problem

34. Foreign Investment
Building infrastructure, providing services, & creating technology & industry all require lots of money
Developing countries acquire money through:
Internal financing
Foreign investment
Borrowing & debt
Foreign Aid

37. 10.7 Globalization
Interconnection of producers, consumers, & financial systems around the world
Middle Ages: Asian spice trade
Exploration: Columbus
Imperialism
Today, happening at much quicker pace

38. Challenges of Globalization
“Arguing against globalization is like arguing against the laws of gravity.”
Closely linked financial markets
2007,2008 US financial mortgage crisis caused trouble globally