International Trade

International Trade Defined

• Each nation sells some of its products to other nations .

• Then it buys things from other nations that it can’t produce easily itself.

Imports and Exports

• Imports: Goods and Services bought from other nations. We have a lot of ever day items assembled in China and then brought back into the country.

• Exports: Goods that leave our country and go to another country to be bought. We export a lot of chemicals. They leave our country and go to other countries.

Balance of Trade

• Difference between the value of a nation’s exports and the value of its imports in a given year.

Balance of Payments

• Difference between the total amount of money coming into a nation and the total amount leaving a nation.

• Relates to balance of payments: you want more exports than imports.

Trade Surplus

• Situation in which a nation’s exports exceed its imports; positive balance of trade.

Trade Deficit

• Situation in which a nation’s imports exceed its exports; Negative balance of trade.

Absolute Advantage

• The ability of a particular country to produce a particular good with fewer resources than another

Comparative Advantage

• Ability to produce a good or service at a lower opportunity cost than another nation can.

Table ASugar Fertilizer

U.S.A. 80 100

Nicaragua 70 50

Total 150 150

The USA has an absolute advantage in making both Fertilizer and Sugar

The USA has a comparative advantage in making Fertilizer

Nicaragua has a comparative advantage in making Sugar

Table BSugar Fertilizer

USA 0 200

Nicaragua 200 0

Total 200 200

If both countries specialize in the product that they have a comparative advantage in than the production of both products goes up.

The two countries can now trade with one another and have more variety and supply for both countries

Trade Organizations

• Can also be called Trade Blocks. These are groups of Countries that have agreed to trade with each other. A country can be a member of more than one trade group or trade block. International organizations that are set up to increase trade amongst the member countries.

Why do countries Trade?

• 1. To get what they need or want

• 2. To make Money

• 3. To make friends or allies

Favored Nations

• Countries that you like to trade with the most. The USA trades with many countries but our most favored nation is Canada.

NAFTA

• North Atlantic Free Trade Agreement: established in 1992.

• Called for the elimination of all tariffs (trade barrier) between the United States, Canada, and Mexico over a fifteen year period

• Some success in increasing the economies of those involved.

Asia/Pacific-trade group

• Trade group or block made up of many countries in Asia. The United States is a member of this group.

ASEAN

• Association of Southeast Asian Nations

• Asian trading bloc that aims to encourage free trade between its 10 member nations. Est. 1992

Map of ASEAN

European Union EU

• European trading bloc that promotes free trade among its 27 member nations and features a shared currency called the Euro.

Map of EU

The Euro

• Is the name of the new type of currency that was created by the European Union in 1999. This money can be used in just about every country in Europe. One type of money that can be used in each country. This was done to help make trade and travel better in Europe

World Trade Organization • Organization that supervises and makes easier

international trade.• Established in 1995• The organization deals with regulation of trade

between participating countries; it provides a framework for negotiating trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements

• Currently 152 member countries

NATO

• North Atlantic Treaty Organization• This is not a trade group NATO is a military

alliance/group made up of many countries in North America and Western Europe. The United States is one of the major members of NATO

• It was formed to provide protection against any possible attacks from the Soviet Union or China after WWII.

Unfavored Nations

• Countries that you would not like to trade with.

• The United States does not trade with Cuba and North Korea because we do not like their communist governments or their leaders.

Trade Barrier

• A Limit on Trading from one country to another. A restriction on imports

Types of Trade Barriers

• Tariff: A tax on certain Imported goods. Tariff on steel and cars from other countries.

• Standard: Are rules about the equality of imported goods. Example: government ban on fruit that was sprayed with a certain type of pesticide. Or lead paint toys from China.

• Subsidies: Direct financial aid, often through tax credits or tax deductions, to certain domestic industries. Example: Tax break on domestic industries.

Types of Trade Barriers Cont.

• Embargo: Total ban on one or more products from a particular nation. Example: N. Korea, and Cuba.

• Quota: Limit on the number of certain products that can be imported from another nation. Example: 1980’s quota on the number of cars imported from Japan.

Protectionism

• Government policy that attempts to limit imports.

• These are the people who do not believe that the USA should trade with other countries.

• Protectionists feel that it hurts America if we bring foreign products into the country.

• Protectionists support trade barriers.

Disadvantages to Trade Barriers

• 1. Higher prices • 2. Less variety • 3. It makes other countries place trade

barriers on us• 4. It goes against free market beliefs

Advantages of Trade Barriers

• Help American Companies to make Profit and keep them from going broke due to high labor cost that we have in America compared to other areas in the world.

• By protecting American Companies this will also save jobs of American Workers.

National Security

• The protection of ones own country from other countries taking advantage of it.

Free Trade

• Open Trade between nation’s without any barriers to imports.

Exchange Rate

• Price of one nation’s currency in terms of another nation’s currency.

• The exchange rate between two currencies depends on how much demand there is for each countries exports at any given time.

• When there is more demand for a nation’s products, people need more of that nation’s currency to buy the products.

Appreciation

• A gain in value of a currency to another nation’ s currency .

• When the Dollar is strong or Appreciates – Imports increase and are cheaper for consumers

to buy.– Travel abroad is cheaper for American tourists.– U.S. Exports decline – The U.S. Trade deficit increases

Depreciation

• The lowering or devaluation of a nation’s currency to another nation’s currency.

• When the Dollar is weak or depreciates:– U.S. exports increase and the price of exports goes up.– Travel becomes more expensive for American Tourists – U.S. imports decline and the price increases – The U.S. trade balance improves – Foreign investments in U.S. businesses increases

NAFTA

• North Atlantic Free Trade Agreement: established in 1992.

• Called for the elimination of all tariffs (trade barrier) between the United States, Canada, and Mexico over a fifteen year period

• Some success in increasing the economies of those involved.

Who Supports NAFTA

• Big Businesses, Mexican Workers with NAFTA jobs, American consumers who get goods cheaper due to reduced costs.

Those Opposed to NAFTA

• American Workers, American Unions, American Protectionists.

Currency

• Dollar: The United States form of paper money or currency

• Euro: Is the name of the new type of currency that was created by the European Union in 1999. This money can be used in just about every country in Europe. One type of money that can be used in each country. This was done to help make trade and travel better in Europe

Currency Continued

• Yen: The yen is the currency of Japan. Japan's New Currency Act of 1871 introduced the yen as Japan's official currency in 1872. The yen replaced the mon, Japan's previous currency. JPY is the currency code for the Japanese yen. is the symbol for the Yen. After World �War II, the yen had lost significant value so in 1949, the yen was pegged to the US Dollar. At that time, the Breton Woods system established that 1 US$ would equal 360. �In 1973, the Yen became a free floating currency. The Bank of Japan (BOJ), Japan's central bank, is responsible for Japan's monetary policy and distributes the yen. The yen, along with the US dollar and the euro is one of the major currencies trading on foreign exchange (Forex) markets.

Fixed Exchange Rate

• Is when a country has a fixed exchange rate, the rate is consistent and does not change.

Floating Exchange Rate

• When a country has a floating exchange rate, the rate changes according to supply and demand.

Market Economy “Capitalism”

• A market Economy is based on Capitalism. You are free to do what you want, voluntary exchange, no government control, individuals, and have private property.

Command Economy

• Also called planned/centralized/communism• Is a country where the government controls

factors of production, they try to make everything equal, and all property is of common ownership.

Mixed Economy

• Also called socialism

• Uses market and command to balance the needs, which are covered by government and the wants from market economy.

Traditional Economy

• With a traditional economy, there is a need to copy from family, culture, and /or religion.