Introduction to Business

Introduction to Business Ch 8: International Business

Trade Among Nations • Domestic Business – The making, buying, and selling of goods and services within a country • International Business – All of the business activities necessary for creating, shipping and selling goods and services across national borders • Also referred to as: Foreign Trade or World Trade

Trade Among Nations • While our country has many natural resources, we cannot provide ourselves with all of the things we want and need. • We conduct trade with as many as 150 countries in one year • Because of trade and modern means of transportation, nations everywhere can specialize in the kinds of production they can do best.

Trade Among Nations • Importing – Things we buy from other countries • Without importing, many of the things we buy would cost more or not be available to our consumers • Exporting – The goods and services we sell to other countries

Barriers to International Trade • Quotas – Limit on the quantity of a product that may be imported or exported within a given period of time. • Why are quotas placed • Keep supply low and prices level • Express disapproval of the policies or social behavior of a country • Protect one of its industries from too much competition from abroad

Barriers to International Trade • Tariffs – A tax that a government places on certain imported products • Increasing the price of an imported product, may cause you to decide to buy a U.S. manufactured product at a lower price. • High tariff tends to lower the demand for the product and reduce the quantity of the import. • Many argue, tariffs should be used to protect U.S. jobs from foreign competition

Barriers to International Trade • Embargoes – Government stops the export or import of a product completely • Imposed to protect their own industries from international competition to a greater degree than either the quota or the tariff will accomplish • Wish to prevent sensitive products from falling into the hands of unfriendly groups or nations

NAFTA =What is NAFTA? • The North American Free Trade Agreement (NAFTA) is a comprehensive trade agreement that sets the rules of trade and investment between Canada, the United States, and Mexico. Since the agreement entered into force on January 1, 1994, NAFTA has systematically eliminated most tariff and non-tariff barriers to free trade and investment between the three NAFTA countries. How does NAFTA work? • NAFTA is a formal agreement that establishes clear rules for commercial activity between Canada, the United States, and Mexico. NAFTA is overseen by a number of institutions that ensure the proper interpretation and smooth implementation of the Agreement’s provisions. For more information about NAFTA trilateral institutions.

NAFTA =What are the benefits of NAFTA? • Since NAFTA came into effect, trade and investment levels in North America have increased, bringing strong economic growth, job creation, and better prices and selection in consumer goods. North American businesses, consumers, families, workers, and farmers have all benefited. How can I make NAFTA work for my business? • NAFTA provides North American businesses with better access to materials, technologies, investment capital, and talent available across North America. For examples of companies that are succeeding under NAFTA.

NAFTA What are the NAFTA rules of origin? • Each NAFTA country forgoes tariffs on imported goods “originating” in the other NAFTA countries. Rules of origin enable customs officials to decide which goods qualify for this preferential tariff treatment under NAFTA. The negotiators of the Agreement sought to make the rules of origin very clear so as to provide certainty and predictability to producers, exporters, and importers. They also sought to ensure that NAFTA’s benefits are not extended to goods imported from non-NAFTA countries that have undergone only minimal processing in North America. How did NAFTA affect tariff rates within North America? • On January 1, 2008, the last remaining tariffs were removed within North America. When implemented, NAFTA immediately lifted tariffs on the majority of goods produced by the NAFTA partners and called for the phased elimination, over 15 years, of most remaining barriers to cross-border investment and to the movement of goods and services between the three countries.

Measure Trade Between Nations • Balance of Trade – Difference between a country’s total exports and total imports • Trade Surplus – Export more than it imports • Position is favorable • Trade Deficit – Import more than it exports • We buy more foreign goods than we sell • A country can have a trade surplus with one country and a deficit with another

Measure Trade Between Nations • Balance of Payment – Difference between the amount of money that comes into a country and the amount that goes out • Surplus – we have more money coming into a country • Deals with tourism, banking, and investments

International Currency • Foreign Exchange Market – Consists of banks that buy and sell different currencies. • Exchange Rate – The value of a currency in one country compared with the value of a currency in another

Introduction to Business