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International Trade

Chapter 34. International Trade. Economies of Scale. Efficiency from size This is a motivation for international trade. This is a big reason why international companies are successful. they are more cost-efficient than their competitors. What to Export.

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International Trade

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  1. Chapter 34 International Trade

  2. Economies of Scale • Efficiency from size • This is a motivation for international trade. • This is a big reason why international companies are successful. • they are more cost-efficient than their competitors Chapter 34

  3. What to Export • Export items if the country has a comparative advantage. • Lower opportunity cost than trading partner Chapter 34

  4. Trading Blocks • Groups of geographically close countries that trade together. • North America • South America • Europe • Asia Chapter 34

  5. NAFTA • North American Free Trade Agreement • Agreement between Canada, U.S., & Mexico to reduce trade barriers • Goal: Make trading between countries as easy as trading from VA to NC Chapter 34

  6. Impacts of Trading • Importing Country • Loses market share • Slower job growth • More variety • Lower prices • Money leaves country • Exporting Country • Gains market share • More jobs/faster growth • Higher prices • Money comes into country Chapter 34

  7. Protectionism • Limiting trade to protect the domestic economy. Chapter 34

  8. Trade Barriers • Tariffs • Quotas • Custom restrictions • Licensing requirements • Voluntary export restrictions • Ownership/partnership rules Chapter 34

  9. Arguments For Protectionism • National Security • Self-sufficiency • Increase/protect jobs • Diversification for stability • Protect infant industries • Protect against dumping • Dumping – selling below cost Chapter 34

  10. Costs of Protectionism • Jobs lost producing export goods • Higher prices • Less variety • Governmental costs to create & enforce rules • Reduced tax revenue • Hurts lower-income families more • Price increases are a higher % of their income Chapter 34

  11. How To Make Trade Easier • Communication Technology • Transportation technology • Peace • Reduced custom restrictions: • Tariffs • Licensing requirements • Unreasonable standards • “red tape” Chapter 34

  12. Current Account • Flow of goods & services • Measured as the difference between exports & imports Chapter 34

  13. Current Account • Surplus • More money for domestic companies • More jobs • Higher prices • Deficit • Less money for domestic companies • Fewer jobs • Lower prices Chapter 34

  14. Capital Account • Flow of financial assets • Difference between foreign investment in the U.S. and U.S. investment abroad Chapter 34

  15. Capital Account • Surplus • More money for domestic companies • Reduced debt for domestic companies • Opportunities to invest overseas • Deficit • Less money for domestic companies • Increased debt to foreign creditors • Loss of ownership & control to foreign businesses Chapter 34

  16. Current & Capital Accounts • Usually, they are in deficit together, or in surplus together. • “Twin deficits” of trade Chapter 34

  17. Twin Deficit Impacts • Prices lower • Jobs lower • Local ownership declines Chapter 34

  18. Exchange Rates • The price of 1 country’s money in terms of another. • To get 1 British Pound, you would have to give up $2.06 • 1 U.S. dollar is worth .4848% of 1 Pound • 1 U.S. dollar is worth .9923% of 1 Canadian Dollar Chapter 34

  19. Strong Dollar • 1 dollar can get you a lot of a foreign currency • Foreign products (imports) are cheaper • Imports increase • Exports decrease • Prices drop because of increased competition • Jobs lost • You can buy more while on vacation Chapter 34

  20. Weak Dollar • 1 dollar can get you less of a foreign currency • Domestic products (exports) are cheaper • Imports decrease • Exports increase • Prices higher in U.S. (foreign products aren’t as cheap) • Jobs gained producing export goods Chapter 34

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