Global Analysis International Trade
Explain the interdependence of nations Explain the nature of international trade Explain the balance of trade List the three types of trade barriers List three significant trade agreements and alliances that foster worldwide free trade International Trade: Objectives
Nature of International trade • International trade is the exchange of goods and services among nations. • Imports are goods and services purchased from other countries. • Exports are goods and services sold to other countries.
Interdependence of Nations • Countries get some of their goods and services from other nations • Each country possesses unique resources and capabilities.
The Global Marketplace Interdependence of Nations • Most countries need to get some of their goods and services from other nations. This is called economic interdependence. There are two types of advantages in international trade: • absolute • comparative
Absolute Advantage and Comparative Advantage ABSOLUTE • Occurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possible. COMPARATIVE • Value that a nation gains by selling what it produces most efficiently.
Benefits of International Trade • Consumers • Benefit from the competition that the foreign companies offer • Producers • Many producers expand business by conducting operations in other countries. • Workers • Increased trade can lead to higher employment rates both at home and abroad. • Nations • Increased foreign investment in a country often improves the standard of living for that country’s people.
The Global Marketplace Government Involvement in International Trade All nations control and monitor their trade with foreign businesses. The U.S. government monitors imports through the customs division of the U.S. Treasury Department.
Government Involvement in International Trade • Balance of Trade • Trade Deficit • Negative Consequences of a Trade Deficit • Trade Barriers • Tariffs • Quotas • Embargoes • Protectionism • Protectionism and Subsidies • Trade Agreements and Alliances • The World Trade Organization • The WTO, For or Against? • North American Free Trade Agreement • European Union
Balance of Trade • The difference between exports and imports of a nation, • Positive balance of trade = trade surplus • Negative balance of trade = trade deficit • Trade Deficit • Negative Consequences of a Trade Deficit
Trade Deficit 1. monthly U.S. exports and imports in dollars through November 2008 2. U.S. trade deficit / surplus as a percent of GDP since 1960 through Q3 2008.
Trade Barriers • Tariffs: tax on imports. • Produce revenue for a country • Protective tariff-increases the price of imported goods so that domestic products can compete • Quotas: limits either the quantity or the monetary value of a product that may be imported. • Embargo: total ban on specific goods coming into and leaving a country.
Trade Agreements and Alliances • The World Trade Organization (WTO) • Coalition of nations that makes rules governing international trade • Successor to GATT • North American Free Trade Agreement (NAFTA) • Eliminate all trade barriers between Mexico, Canada and the U.S. • European Union (EU) • Free trade among member nations • Euro • Central Bank