1. Chapter 17 – International Trade
Section 1 – Why Nations Trade
Section 2 – Barriers to Trade
Section 3 – Measuring Trade

2. Today’s Agenda
Jumpstart - Can America become an isolated country and just stop trading with other countries? Explain your answer.
Reading Minute
Why Nations Trade – Scenarios
Notes - Chapter 17, Section 1

3. Why Nations Trade: Scenarios
What types of goods and services are mentioned in the scenario? Which would be considered necessities by the members of the community, and why? Where does the community get these goods and services? How much of the community's needs are met by getting goods and services from other communities? By their own community?

4. Why Nations Trade
-Scenario 1: Williamsburg, Virginia (17th Century) -Scenario 2: Diné (Navajo) Village (15th Century) -Scenario 3: New York City (19th Century) -Scenario 4: Samarkand, Uzbekistan (10th Century) -Scenario 5: Home Town (21st Century) -Scenario 6: Ancient Village (5,000 years ago)

5. Resources and Trade
Each country of the world possesses different types and quantities of land, labor (human capital), and capital resources (physical capital).
Other impacts – economic activity patterns, need for trade, unequal resource distribution
Specialization and trade can benefit all nations.

6. Comparative and Absolute Advantage
A person or nation has an absolute advantage when it can produce a particular good at a lower cost than another person or nation.
Comparative advantage is the ability of one person or nation to produce a good at a lower opportunity cost than that of another person or nation.

7. Law of Comparative Advantage
The law of comparative advantage states that nations are better off when they produce goods and services for which they have a comparative advantage in supplying.

8. U.S. Import and Exports
U.S. is the worlds largest importer and exporter

9. Effect of Trade on Employment
Workers who lose their jobs due to specialization face three options:
Unemployment: Inability to adapt and find a new job
Relocation: Moving to where current skills meet current jobs
Retraining: Gaining new human capital to meet the demands of specialized labor markets

10. End Here 

11. Jumpstart Assignment
Should America protect its domestic companies from foreign competition in order to protect American companies and American jobs?

12. Today’s Agenda Jumpstart Assignment Notes: Ch. 17, Sec. 2
Free Trade vs. Protectionism
Article: Current Article on Free Trade vs. Protectionism

13. Should America protect its domestic companies from foreign competition in order to protect American companies and American jobs?

14. Trade Barriers
A trade barrier is a means of preventing a foreign product or service from freely entering a nation’s territory.

15. Types of Trade Barriers
Import Quotas
An import quota is a limit on the amount of a good that can be imported.
Voluntary Export Restraints
A voluntary export restraint (VER) is a self-imposed limitation on the number of products shipped to a certain country.
Tariffs
A tariff is a tax on imported goods, such as a customs duty.
High license fees/health and safety regulations

16. The Effects of Trade Restrictions
Increased Prices for Foreign Goods
Tariffs and other trade barriers increase the cost of imported products, making domestic products more competitive.
Although manufacturers of many products may benefit from trade barriers, consumers can lose out.
Trade Wars
When one country restricts imports, its trading partner may impose its own retaliatory restrictions.

17. Hawley-Smoot Tariff Raised tariff on all products to 50%
Europe responds in kind
Sinks US/world into deeper depression

18. International Cooperation
Recent trends have been toward lowering trade barriers.
In 1948, the General Agreement on Tariffs and Trade (GATT) was established to reduce tariffs and expand world trade.
In 1995, the World Trade Organization (WTO) was founded to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes.

19. Exchange Rates and International Markets
An increase in the value of a currency is called appreciation.
A decrease in the value of a currency is called depreciation.
Multinational firms convert currencies on the foreign exchange market, a network of about 2,000 banks and other financial institutions.
The value of your own currency in comparison to another is the exchange rate
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20. Reading an Exchange Rate Table
The following table shows an example of exchange rates.
Foreign Exchange Rates
U.S. $
Australian $
U.K. £
Canadian $
¥en
Euro
Mexican nuevo peso
Chinese renminbi 1
1.541
0.6252
1.478
114.3
0.9516
9.33
8.28
Aust $
U.K. £
Canadian $
¥en
Euro
Mexican NP
Chinese renminbi
0.6489 1
0.4057
0.9593
74.19
0.6175
6.06
5.37
1.599
2.465
2.365
182.9
1.522
6.3
13.25
0.6764
1.042
0.4229
77.34
0.6436
5.6
0.01
0.08
0.07
1.051
1.62
0.657
1.554
120.2
9.81
8.7
0.11
0.17
0.16
12.24
0.1
9.8
0.12
0.19
0.18
13.81
1.13

21. Types of Exchange Rate Systems
Fixed Exchange-Rate Systems
A currency system in which governments try to keep the values of their currencies constant against one another is called a fixed exchange-rate system.
Flexible Exchange-Rate Systems
Flexible exchange-rate systems allow the exchange rate to be determined by supply and demand.

22. Balance of Trade
When a nation exports more than it imports, it has a trade surplus.
When a nation imports more than it exports, it creates a trade deficit.

23. The United States Trade Deficit
The Trade Deficit
The United States has run a trade deficit since the early 1970s.
Why the Trade Deficit?
Imports of foreign oil as well as Americans’ enjoyment of imported goods account in part for the large American trade deficit.
Reducing the Trade Deficit
Quotas and other trade barriers can be used to raise prices of foreign-made goods and urge consumers to buy domestic goods.

24. Jumpstart Assignment
Take out your assignment from last class for discussion.

25. In what way can outsourcing be a good thing?
Jumpstart Assignment
In what way can outsourcing be a good thing?