1. Chapter 7.1
Trade Between Nations

2. Imports
A product brought in for sale from a foreign country

3. Exports
A product sent to a foreign country for sale

4. Imports and Exports can be:
Consumer goods
Producer goods
Agricultural products
Raw materials
Services

6. Copyright National Council on Economic Education
Copyright National Council on Economic Education. Reproduction for Educational Use is Granted

8. Why Nations Trade?
One country has natural resources that another country lacks or has in short supply.
The U.S. has very little of the mineral bauxite (used for making aluminum). Almost all of the bauxite used in the United States today is imported.

9. Why Nations Trade?
Nations can increase productivity and wealth by specializing in what they produce more efficiently and trading for goods they produces less efficiently

10. Benefits of Trade Consumer choices: Increased competition:
Some consumer goods would not be available
Increased competition:
Foreign trade brings additional competitors to the marketplace
Benefit of increased competition?
Expanded markets:
Business that produce goods and services for export to other countries benefit from an expanded market for their products

11. Benefits of Trade International relations: Prosperity and peace
Countries that export many goods and services to the U.S. are likely to want to promote good relations with the U.S. government
Prosperity and peace
U.S. consumers buy imports, they send dollars abroad. (The other country can prosper)

12. Currencies and Trade
When two countries with different currencies want to do business with one another, the buyer must convert its money to the sellers currency
A hospital in Mexico wants to buy medicine from a U.S. company would exchange its currency, pesos, for U.S. dollars. ( A bank would perform the currency exchange)

13. Exchange Rate
The cost of one currency expressed in terms of another currency
What is our dollar worth???

14. Factors affecting Exchange Rates
Changes in interest rates
Economic and political stability
Supply and Demand
Amount of National Debt
Trade Deficit

15. How exchange rates affect trade
If the U.S. dollar is weak, exports from the U.S. tend to increase
Why?
Other countries get a bargain rate when converting their currency to U.S. dollars

16. Understanding the trade deficit
Balance of Trade:
Difference between the value of a nation’s exports and it imports

17. Trade deficit
When a country spends more in imports than in receives for exports; US has a trade deficit

18. Balance of Payments
An accounting of all its financial transactions that involve other countries during a particular time period.

19. End of 7.1

20. Trade Restrictions and Agreements
Chapter 7.2
Trade Restrictions and Agreements

21. Ways to Restrict Trade Tariff: a tax on imports
There are different types of tariffs
Revenue tariff: intended simply as a source of gov’t ___________
Protective tariff: larger (up to 62%)
The tariff is paid by the importer, who then adds it to the price charged to consumers. The much higher price of imported goods discourages consumers from_____________
revenue
buying

22. Ways to Restrict Trade Continued
Import Quota: government limit on the quantity or value of certain imported product
The U.S. government has placed quotas on peanuts, cotton, sugar, and cars
It raises consumer ________________
prices

23. Ways to Restrict Trade
Embargos: gov’t order prohibiting trade. It can apply to a specific type of product or to trade with a specific country

24. Protectionism Versus Free Trade
Protectionism: Policy of using trade restrictions to protect domestic businesses from foreign competition
Free Trade: Policy of minimizing trade restrictions

25. Arguments for Protectionism
National security: Certain kinds of computers, software, and nuclear technology cannot be exported without gov’t approval
Job security: If companies that can’t compete against cheaper foreign products, they are forced out of business and U.S. workers lose their job
Environmental protection: Trade restrictions against countries that have few environmental laws could reduce the demand for their products, reducing pollution
Unfair advantages: Gov’t can place a high tariff on imported goods of a country that tries to sell their product below market cost.

26. Arguments for Free Trade
Effect on exports: Other countries often retaliate with their own trade restrictions
Effect on consumers: Free trade allows for more consumer choices
Benefits of competition: Competition from imports can spur U.S. firms to improve their production efficiency and the quality of their products

27. Trade Agreements
General Agreement on Tariffs and Trade (GATT): Goal was to reduce or remove trade barriers
In 1947, 90 countries signed this
World Trade Organization (WTO): international organization that governs trade between over 140 nations. They agree to specific rules that guarantee certain trade rights and lower trade barriers

28. North American Free Trade Agreement
(NAFTA) regional trade agreement between the U.S., Canada, and Mexico
Went into affect on 01/01/94
Designed to give legal protections to investors and international businesses in all three countries
Under NAFTA trade is ______________
growing

29. European Union
Organization of independent European nations whose goal is to create a unified and strong market

30. End of 7.2