1. The United States and the Global Economy
How do countries trade in the global economy?

2. Why is global trade growing in importance?
Definition of “global economy”: the system of markets and trade that link the countries of the world.
Dramatic growth in the last half of the 20th century:
Result of advancements in transportation, communication, and shift of types of goods being produced and traded. EXAMPLES?
Comparative advantage:
Country has an advantage when it can produce a good or service at a lower opportunity cost than competitors. Advantage is based on factors such as climate, factors of production, and technology. EXAMPLES?

3. What goods and services do countries trade?
United States is the world’s largest importer and a top exporter!
Top trading partners for U.S. (2009)
Canada, China and Mexico
Japan, Germany, UK, South Korea, France, Netherlands, Taiwan
65% of US trade
North American Free Trade Agreement (NAFTA), 1994
US, Canada, Mexico – tariff barriers to agriculture
Advantages of foreign trade:
Great consumer access to goods and services
Cheaper products
Improves standard of living
Exchange of ideas
Negative effects of foreign trade:
Outsourcing

4. How and why do countries regulate trade?
Protectionists versus Non-Protectionists
Debate the concept of “free trade”
Unrestricted movement of goods are services across borders
Most countries are “protectionist”
Restriction of imports to shield domestic markets from foreign competition
Protective Tariffs
Designed to protect an aspect of a country’s economy
Taxes
Import quotas
VER (Voluntary export restraints)
GATT (General Agreement on Tariffs and Trade, )
Japanese cars?
History in the United States?

5. How is global trade financed?
Foreign exchange is the process of converting one currency to another.
Exchange rates (a value in terms of another currency
Depreciation: occurs when one currency loses value relative another
Appreciation: occurs when one currency gains value relative to another
Example: China’s devaluation of the Yuan
Strong or weak dollars
Strong means higher exchange rate and will trade for more foreign currency than a weak dollar (will buy more)
Fluctuation of exchange rates
When rates are tied to supply and demand, exhange is “floating”
Non-floating is when countries measures its currency against a major currency
Balance of trade
The difference btw the values of a country’s exports and imports
Trade surplus: exports more than imports
Trade deficit: imports more than exports