International Trade

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International Trade
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International TradeResource Distribution
Specialization

• A nations economic patterns are based on the
  factors of production it has. These may change
  over time
• Specialization occurs when a narrow range of
  products are made
• Results
• increased productivity profit
• economic interdependencereliance on others for
  products not able to make
• Ex Japan trades for the raw materials it uses
  to produce automobiles. It then turns around
  trades the automobiles for other goods.

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Absolute Comparative Advantages

• Absolute advantage nations ability to make
  product more efficiently
• due to uneven distribution of production factors
  in different areas
• Comparative advantage ability to produce at
  lower opportunity cost
• absolute cost of product not important, just
  opportunity cost

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How International Trade Affects the National
Economy

• Exports goods services produced in one
  country, sold in others
• Importsproducts produced in one country,
  purchased by another
• Costs benefits
• Varies by nation
• Higher prices at home offset by more jobs
  income
• created by production that was expanded to meet
  the demand

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Trade Barriers

• Nations limit trade to protect domestic
  industries, which then leads to higher prices
  economic retaliation by other nations. Over time,
  industries can only be saved by becoming
  competitive.
• Trade barrier law limiting free trade among
  nations
• Import Quota limits on the amount of a product
  that can be imported
• Tarifffee charged for goods brought in from
  another country
• Voluntary export restraint nations
  self-imposed limit on exports that is used to
  avoid a quota or tariff
• Embargo law that cuts most/all trade with a
  specific country

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The Impact of Trade Barriers

• Higher Prices
• Trade barriers raise prices or keep them high
• In 2000, U.S. Japan set tariffs on South Korean
  semiconductor chips. Korean domestic chip
  prices went up in U.S. Japan
• Trade Wars
• Trade wars often result from disagreements over
  quotas/tariffs

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Balance of Trade

• Balance of tradedifference between value of
  imports exports
• Trade surplusnation exports more than imports
  favorable balance
• Trade deficitnation imports more than exports
  unfavorable balance

8
Balance of Trade

• U.S.-China Trade
• Made U.S. top destination for Chinese exports
  (Most Favored Nation Status)
• China has record trade surplus of 200 billion
  with U.S.

9
Modern Organizations to Combat Trade Barriers

• Free-trade zones areas where nations trade
  without protective tariffs
• Customs unions agreements that abolish trade
  barriers among members. They establish uniform
  tariffs for non-members

10
The European Union

• established in 1993
• economic political union no trade barriers for
  members
• 20 of global exports imports
• wants to remove all barriers to international
  trade
• Euro currency used by 12 of 27 member nations

11
NAFTA (North American Free Trade Agreement)

• Established in 1994
• phased out trade barriers between Canada, Mexico
  U.S. by 2009
• Has led to specialization, efficiency, expanded
  markets, new jobs
• also competitive advantage over EU and Japan
• All countries have had economic gain trade has
  more than doubled

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Other Regional Trade Groups

• Mercosur, APEC
• World Trade Organizationformed in 1995 by
  nations that follow GATT (General Agreement on
  Tariffs Trade) part of the UN
• OPEC Organization of Petroleum Exporting
  Countries
• Cartel - group of producers that controls
  production, pricing marketing of a product

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Measuring the Value of Trade with Foreign Exchange

• Trade needs way to set relative value of trading
  nations currencies
• Foreign exchange market where different
  currencies are bought sold. Its a network of
  major commercial, investment banks linking world
  economies
• Foreign exchange rate price of a currency in
  other currencies
• fixed rate of exchangenations currency constant
  in relation to others
• flexible exchange ratechanges along with
  currencys supply, demand

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Analyzing TariffsWho Wins and Who Loses?

• Background
• The United States has had tariffs on sugar since
  the days of the early republic.
• In recent WTO talks, less-developed countries
  have objected to the lack of market access for
  their goods and their price disadvantage.
• Whats the Issue
• How do the trade barriers set up by the U.S.
  government affect producers (both foreign and
  domestic) and consumers?
• Thinking Economically
• Which argument for protection does document C
  seem to make? Is this argument economically
  valid? Explain.
• Is the difference in price shown in document B an
  unavoidable outcome of the program outlined in
  document A? Explain.
• How does U.S. government intervention in the
  sugar industry limit the functioning of the
  economy as a free market? Use examples from the
  documents in your answer.

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Reviewing Key Concepts

• Explain the relationship between the terms in
  each of these pairs
• free-trade zone and customs union
• EU and NAFTA
• OPEC and cartel