1. International Trade Chapter 4.1 (2006 Edition)

2. The Global Marketplace
What you’ll learn:
The interdependence of nations
The benefits of international trade
Government involvement in International trade
Balance of trade
Trade barriers
Trade agreements and alliances

3. International Trade
Involves the exchange of goods and services between nations.
Imports are goods and services purchased from other countries
Exports are goods and services sold to other countries.

4. Interdependence of Nations
Interdependence occurs because each nation possesses unique resources and capabilities.
Other nations may have a shortage of something that another has an abundance of.

5. Absolute Advantage
When a country has a natural resource or ability that allow it to produce a product at the lowest cost possible.
Trade is still valuable even when absolute advantage does not exist.
Examples: China produces nearly 80% of all silk.
U.S. has absolute advantage growing wheat.

6. Comparative Advantage
The value that a nation gains by selling the goods that it produces most efficiently.
World Powers:
High tech equipment and goods may be produced in the U.S. or Japan.
Third World Countries:
Products that are labor intensive may be produced in emerging nations with low labor costs, giving them a comparative advantage (Toys, clothing, shoes).

7. Example: Wal-Mart’s influence on China
An abundance of cheap labor gives China the advantage.
China is now the major producer of TV’s and other electronic equipment.

8. Benefits of International Trade
Fun Fact: 1/3 of U.S. business profits come from international trade/foreign investment.
Consumers benefit because they can get high-quality goods at lower prices.
Producers have places to expand business.
Workers have jobs created by trade.
Toyota = 500,000 jobs in U.S.
Economic alliances help to build political alliances.

9. Government Involvement
All nations control and monitor their trade with foreign businesses.
Balance of Trade

10. Balance of Trade
The difference in value between exports and imports of a nation
Trade Deficit – importing more than exporting
Trade Surplus – exporting more than importing

11. Effects of Deficit
Reduces a nations revenue and becomes a debtor nation.
Weaker currency
Increased unemployment
Foreign workers take business away
More competition for domestic businesses

12. Trade Barriers
Free Trade – Many countries around the world favor and practice free trade.
Trade restrictions imposed by a government are meant to restrict the flow of goods/services among nations.
3 Types:
Tariffs
Quotas
Embargos

13. Tariff AKA “Duty” A tax on an import
Revenue Producing: Creates additional source of income for a nation.
Protective: Increases prices on imports to protect industry & jobs from foreign competition.

14. Quotas
A restriction on the quantity or monetary value of a product that may be imported.

15. Embargo A total ban on specific goods coming into or leaving a nation.
Health reasons
Political reasons: Can last a long time. Cuba (1960–current)

16. Trade Agreements & Alliances
The World Trade Organization (WTO)
Coalition of 148 countries (1995)
Governs International Trade
Succeeded GATT
(General Agreement on Tariffs & Trade)
Belief in Open Markets
Promotes global free trade
Created by GATT to police agreements and resolve disputes.
Addresses intellectual property rights, investment, and services.

17. Trade Agreements & Alliances
North American Free Trade Agreement (NAFTA)
Agreement between U.S., Mexico, and Canada.
January 1, 1994
Goal is to get rid of all trade barriers and investment restrictions among the three countries by 2009.
Increased trade with Mexico
Eliminated tariffs on more than 4,500 products (food, clothing, autos…)

18. Trade Agreements & Alliances
European Union (EU)
Single currency for all member nations
Free trade among members
Created a central bank
Strengthened currency of most nations.
United members as a trading bloc.