Pedal Power Goes Global Issues Affecting International Trade Why do Nations Export Sell excess production
Obtain prices higherthen prices they can obtain domestically. Developing countries export so they can import The Benefits of World Trade
Imports supply many goods and natural resources American workers are employed in industries that export products abroad. United States Imports on a International Scale Absolute vs. Comparative Advantage
Absolute advantage ability of country to produce product more efficiently than another country. Comparative advantage ability of country to produce product at a lower opportunity cost than another country. Specialization Nation finds it profitable to produce & export a limited assortment of goods for which it is particularly suited. US Bike Imports Dropped 15% USA 2008: Bike Market Not Immune to Recession Fixed Exchange Rate 1945 -1970 Devaluation Fixed
National governments valued their currency in relation to a single standard Easy to compare different currencies Devaluation lower a currencys value in relation to other currencies by government order Fixed Difficult to hold exchange rates constant in an international economy Flexible Exchange Rate
Supply & demand set price of various currencies Depreciation when a currencys price falls due to supply and demand Political or economic instability can affect currency value Balance of Trade Positive Negative Exports > Imports
Imports > Exports A trade deficit is not always harmful because it encourages foreigners to invest in the U.S. economy US Trade Deficit Increases by Most Since The trade deficit in the U.S. widened in September by the most in a decade, reflecting rising demand for imported oil and automobiles as the economy rebounded from the worst recession since the 1930s. Exports Machinery and equipment, industrial supplies, non-auto consumer goods, motor vehicles and parts, aircraft and parts, food, feed and beverages. Imports Non-auto consumer goods, fuels, production machinery and equipment, non-fuel industrial supplies, motor vehicles and parts, food, feed and beverages. Gross Domestic Product
Indicator of economys health Three major components C = Household purchases of final consumer goods and services G = government purchases of goods and services I = purchases of businesses of capital goods, X = Net exports = exports - imports GDP = C + G + I +X Final v. Intermediate Goods
Final Goods and Services Manicures Bread Cruise missile New factory Dresses Increase in automobile inventory Intermediate Goods Window glass in new automobiles Lumber in a new house Screws used in a cruise missile Flour for making bread Cloth for making dresses A Final Good is one that is ready to be purchased by the consumer An intermediate good is a product that goes with other products to make the final product GDP Goods & Services at Final Destination
Who buys haircuts, bread & dresses? Who buys cruise missiles? Who buys a new factory or builds up an inventory of unsold products such as automobiles? Households, families, individuals Government Businesses Economic Forecasting Measurements of Income
National Income (NI) - total earned by everyone in the economy. wages and salaries, income of self-employed people, rental income, corporate profits, interest on savings and other investments. U.S. GDP / Total Population = U.S. GDP Per Capita United States GDP by Sector United States Top Trading Partners Ways to Restrict Imports
Tariff or taxes on imports. Revenue tariffs raise income without restricting imports Protective tariffs raise the cost of imported goods to discourage people from buying imports Imports quotas limit the number of units of a particular good that can be imported Embargoes are complete restrictions on importing or exporting certain goods. Applied to certain countries Arguments For or Against Free Trade
Improved products Foreign competition Export industries Restrictions may jeopardize jobs Specialization & Comparative Advantage Provides improved goods at lower prices Against Protectionists Job security Loss of jobs National Economic Security Protect oil industry from foreign competition Infant, new industries Tariffs & quotas to allow to compete in world market Trade Agreements The General Agreement on Tariffs and Trade (GATT)
U.S. & 22 countries in 1947 Promoted liberalization of trade Nations agree on tariff reductions that benefit all members The World Trade Organization (WTO) was established in 1993 to replace GATT Farthest-reaching global trade agreement in history 140 nations Encourages trade Administers global trade agreements Resolves disputes when they arise Transatlantic Trade and Investment Partnership (TTIP)
EU United States - Pros Increased GDP Potential to boost the GDP of each economy by 0.5 percent Ease of Doing Business Easier for trade to occur US car manufacturers will not need to make modifications before selling to EU countries, reducing costs and time to market. New Trade Opportunities Products typically restricted by protectionist trade barriers will be free to be sold in completely new markets which could enable businesses to grow significantly. Global Standards US and EU = 60% of Global GDP Unified standards would encourage other nations to raise their standards Transatlantic Trade and Investment Partnership (TTIP)
EU United States Cons Lowering standards Perception that Europe is ahead of the US in terms of many of its standards Harmonization could remove these. EU has pushed to remove checks at ports for imports and exports, which has the potential to harm food safety standards. Lack of transparency Negotiations in private between government officials and business leaders Cornish pasties from Colorado Producers of regionally-based foods have voiced concerns that their products will be undermined by cheap foreign competitors; potential to dilute the cultural heritage of regions famous for their food. Regional Trade Agreements
1993 North America Free Trade Agreement 1993 United States Canada Mexico Links 439 million people Eliminate tariff barriers Mexican exports have doubled - $115 billion Potentially led to loss of 879,000 U.S. jobs Traffic delays along border World Trade Bridge 10,000 trucks a day European Union 28 current members Economic integration as single market Common currency - Euro Barrier free market for goods & services 370 million European consumers