International Trade

1. International Trade Economics Domain #4 Nancy Kemp Ware, Instructor Gainesville High School

2. Trade: Why do people, businesses and Nations trade?

3. International Standard #1 • SSEIN1 The student will explain why individuals, businesses, and governments trade goods and services. • a. Define and distinguish between absolute advantage and comparative advantage. • b. Explain that most trade takes place because of comparative advantage in the production of a good or service. • c. Explain the difference between balance of trade and balance of payments.

4. International Trade Vocab Strategy p&P Examples: Instructions: 1) Predict what you think these words will mean in the context of International Trade. 2) Pick examples you have heard about this word in the news or in your own life

5. International Trade Vocab Strategy p&P Examples: Instructions: 1) Predict what you think these words will mean in the context of International Trade. 2) Pick examples you have heard about this word in the news or in your own life

6. Upload International to Your Brain!Virtual Economics Video Vocab • Economic Development • Benefits of Trade/ Comparative Advantage

7. Unit 4 Essential Questions! SSEIN1 Why do individuals, businesses, and governments trade goods and services? SSEIN3 How can changes in exchange rates can have an impact on the purchasing power of individuals in the United States and in other countries? SSEIN2 Why do countries sometimes erect trade barriers and sometimes advocate (promote) free trade?

8. Why? Why? Why? • Profit • To obtain needs and wants • To get a wider variety of goods Purchasing power affects how much goods and services your money CAN BUY 1.To protect their industries from other countries 2. To protect consumers (standards) 3. Profit (tariff is a tax & generates revenue)

9. EIN1: why DO individuals, businesses & governments trade goods and services? (TEST QUESTIONS) • Why do nations/countries trade with one another? • Can countries produce everything they need to sustain their existence? • Can individuals produce everything they need to sustain their existence? • What is trade anyway? • What does ‘international’ mean?

10. Absolute advantage vs. Comparative advantage Cost versus Opportunity Cost: This is why we trade!! • What is cost? • What is Opportunity cost? • What is the difference between these 2 definitions? Draw an illustration.

11. 1a: Define and distinguish between absolute advantage and comparative advantage. • A nation has an a__________ advantage when it can produce a particular good at a lower _________________than another nation (use _________resources). • C______________advantageis the ability of one nation to produce a good at a __________ _______________ ________ than that of another person or nation. • Meaning: what that nation forgoes in production is not going to cause economical suffering.

12. 1a: Define and distinguish between absolute advantage and comparative advantage. • A nation has an absolute advantage when it can produce a particular good at a lower COST than another nation (use LESS resources). • Comparative advantage is the ability of one nation to produce a good at a LOWER OPPORTUNITY COST than that of another person or nation. • Meaning: what that nation forgoes in production is not going to cause economical suffering.

13. Unit 4 Why Nations Trade Ipad Inquiry • Name_________________________Date____________________Block______ • With your partner, answer the following questions. You may use an Pad or your phone. http://eh.net/encyclopedia/article/baack.war.revolutionary.us • http://trade.gov/ • http://abcnews.go.com/WN/MadeInAmerica/ • http://www.americansworking.com/ • http://www.census.gov/foreign-trade/statistics/highlights/top/index.html • What was one of the main economic causes of the Revolutionary war? What did the colonies have that Great Britain did not? What did Great Britain have that the colonies did not? • Look at the tag in your shirt. Where was it made? Did the country in which it was produced have an absolute or comparative advantage? Why or why not? • Make a list of 5 items (it can be food, clothing, electronics, cars, etc) that United States imports and 5 items we export. Highlight where these products come from and where we export our goods to on the map. What would happen if we did not have international trade? Does the United States have the capability to produce the items we must import? Would it be enough to meet demand? • Who has the comparative advantage in producing coffee? Columbia or the United States? Why?

14. Ms. Nancy Ware ~ Unit 4 International Trade ~ Why Nations Trade? Inquiry Highlight or circle the countries that the United States imports from and exports to.

15. 1b: Explain that most trade takes place because of comparative advantage in the production of a good or service. Comparative Advantage & Trade

16. We Gain from Trade. No Question About It! • Can you make everything you need to sustain your lifestyle? • Why not? • People are better off from ________ ~ or providing g________ & s__________ to others & r____________ goods and services in return • How does THAT help you? • BUT WHY?

17. We Gain from Trade. No Question About It! • Can you make everything you need to sustain your lifestyle? noooooooo • And why not? Because you don’t have the RESOURCES; they are scarce (unit 1 flashback) • People are better off from trade ~ or providing goods and services to others & receiving goods and services in return • How does THAT help you? You get more that way than if you tried to be self sufficient and do it all yourself • WHY? Specialization! An economy can produce more as a whole when each person specializes and in a task and trades with others for what she is not good at producing….

18. Specialization in International Trade leads to efficiency • Each country of the world possesses different types and quantities of l________, l_________, and c___________ resources. • By s___________________inthe production of certain goods and services, nations can use their r________________ more e________________. • Give an example where you and someone else traded specialized resources and were more efficient because of it. E____________ leads to P___________ leads to P_____ which is the GOAL

19. Specialization in International Trade leads to efficiency • Each country of the world possesses different types and quantities of land, labor, and capital resources. • By specializing in the production of certain goods and services, nations can use their resources more efficiently. • http://www.youtube.com/watch?v=GrY8oymZoe4 • http://www.youtube.com/watch?v=RpfV0Oerfr8&safety_mode=true&persist_safety_mode=1&safe=active Efficiency leads to Productivity leads to Profit which is the GOAL

20. 3a: Give examples of how individuals and businesses specialize • What is Specialization? Devotion of resources to a task • What is Division of labor? Splitting up work into smaller tasks • With a partner, give examples of HOW a business or individual specializes. Tell WHY a business would want to practice this! • Pick a service that requires specialization. • Explain or draw the specialization and the division of labor of your service.

21. 1b: Explain that most trade takes place because of comparative advantage in the production of a good or service. • The _____ ___ ___________________ _______________ (David Ricardo) states that nations are better off when they produce goods and services for which they have a c____________ a____________ (lower o__________ c_______) in supplying. • WHY? • Why does China create many of the low end goods that the USA imports so much? TIP: Think LOWER OPPORTUNITY COST Decide what the country is MOST EFFICIENT at making

22. 1b: Explain that most trade takes place because of comparative advantage in the production of a good or service. • The law of comparative advantage (David Ricardo) states that nations are better off when they produce goods and services for which they have a comparative advantage (lower opportunity cost) in supplying. • WHY? Due to specialization, what they are giving up production wise is a LOW opportunity (meaning it will not hurt them to give it up), concentrate resources on what they produce WELL, and trade for the other item • Why does China create many of the low end goods that the USA imports so much? Because China has a lower opportunity cost in making those low end products (billions of people = cheap labor) They give up cheap labor TIP: • Think LOWER OPPORTUNITY COST • Decide what the country is MOST EFFICIENT at making

23. Comparative vs. Absolute Advantage • Comparative advantage: who has the lower ___________ ___________? • Absolute advantage: a person or economy can produce _________ of a good or service with a given amount of ____________ than another • _______________ advantage leads nations to _____________with each other • Japan and South Korea make cars and TVs. Amount of each product each nations produces in the table below. Which of the strategies listed would create the best opportunity for trade and profit? a. South Korea should make all of the TVs, and Japan all the cars. b. South Korea makes all of the cars, and Japan makes all of the Tvs. c. South Korea makes all the TVs, and Japan gives up 50 TV sets in favor of 25 cars d. Japan makes all of the cars, and South Korea shifts half of its car production to TVs.

24. Comparative vs. Absolute Advantage • Comparative advantage: who has the lower opportunity cost? • Absolute advantage: a person or economy can produce moreof a good or service with a given amount of resourcesthan another • Comparative advantage leads nations to trade with each other • Japan and South Korea make cars and TVs. Amount of each product each nations produces in the table below. Which of the strategies listed would create the best opportunity for trade and profit? a. South Korea should make all of the TVs, and Japan all the cars. b. South Korea makes all of the cars, and Japan makes all of the Tvs. c. South Korea makes all the TVs, and Japan gives up 50 TV sets in favor of 25 cars d. Japan makes all of the cars, and South Korea shifts half of its car production to TVs.

25. Activity: Apples and Timberrrrr

26. Global Trade Analysis Project • Select a country to research. Create a Poster/PowerPoint or Video. Explain: • Give a brief historical recap • Demonstrate where your country is located • What is the geography of your country & surrounding area? • What your country’s main exports? • Do they have an absolute advantage or comparative advantage in producing those products? • What is their GDP, Standard of living, GDP per capita? • What is the current state of their economy? • What countries do they trade with the most? • What does each country buy from them? • What type of economic system do they have? • Do they have a trade surplus or deficit? Give numbers. • Are they members of any trade organizations? • Give current newsworthy information concerning trade and your country • What is the exchange rate between the USA and your country? • http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

28. Trade Terms to know • Video Clip: Balance of Trade and Balance of Payments (watch & fill in the blanks) • Balance of trade is the ______ that countries _______with other countries in terms of _______ minus _______ . • Export:_______a nation ______to other nations. • Imports:_______a nations ______from another nation. • Balance of Payments is the _____ of all money coming ______the country due to exports minus all of the money going _____ of the country

29. Trade Terms to know • Video Clip: Balance of Trade and Balance of Payments (watch & fill in the blanks) • Balance of trade is the ratethat countries trade with other countries in terms of exports minus imports (X-M) • Export:goods a nation sells to other nations • Imports:goodsa nations buys from another nation • Balance of Payments is the value of all money coming into the country due to exports minus all of the money going outof the country

30. 1c. Whatzzzupwith this USA? • What is this a graph of? • What is the balance of trade? • Is that a surplus or a deficit? • What is the trend on the graph? • Is this positive for the USA? http://www.thestreet.com/story/11279838/1/10-things-still-made-in-america.html

31. 1c. Whatzzzupwith this USA? • What is this a graph of? US Trade • What is the balance of trade? Negative $44.2 billion • Is that a surplus or a deficit? DEFICIT • What is the trend on the graph? The USA continues to have a trade deficit, meaning more imports than exports • Is this positive for the USA? NOPE http://www.thestreet.com/story/11279838/1/10-things-still-made-in-america.html

32. 1c: What is the difference between balance of trade and balance of payments? • Balance of Trade: a nation’s e________ minus i________ (X-M) • BOT is actual g_______, p________ and s__________ being exchanged • Can be referred to as one country vs. another country or one country overall with the rest of the world • The balance of trade can be ____________and have a surplus or it can be negative and be in ____________ • What happens to all of the dollar money going out of the USA?

33. 1c: What is the difference between balance of trade and balance of payments? • Balance of Trade: a nation’s exports minus imports (X-M) • BOT is actual goods, products and services being exchanged • Can be referred to as one country vs. another country or one country overall with the rest of the world • The balance of trade can be positive and have a surplus or it can be negative and be in deficit • What happens to all of the dollar money going out of the USA? http://www.youtube.com/watch?v=xRJZWfqWcs0

34. 1c: What is the difference between balance of trade and balance of payments? • Balance of Payments is the ________ of all the money ($$$) coming into the country due to exports minus all of the money going out of the country for imports (X-M) • BOP has 3 parts: • C___________Account (includes Balance of trade) • C_____________ Account (financial asset transactions) • O____________Reserves Account ($ held by the FED to balance the current & capital account) • All 3 must add up to z________for it to balance • HOTS: What happens when the Fed has to intervene to make the current & capital accounts balance?

35. 1c: What is the difference between balance of trade and balance of payments? • Balance of Payments is the VALUE of all the money ($$$) coming into the country due to exports minus all of the money going out of the country for imports (X-M) • BOP has 3 parts: • Current Account (includes Balance of trade) • Capital Account (financial transactions) • Official Reserves Account ($ held by the FED to balance the current & capital account) • All 3 must add up to zero for it to balance • What happens when the Fed has to intervene to make the current & capital accounts balance?

36. Balance of Trade Favorable versus Unfavorable? • What is a trade surplus? • What is a trade deficit? • Which would a country prefer to have? • For the country you have selected for your Global Analysis project, draw a cartoon depicting their trade status. Include in your picture what they export, import, & indicate in your drawing if they have a trade surplus or deficit.

37. Unit 4 International Trade Quiz ~ Why Nations Trade Name________________________________Date_______________________________Block___________________________ • Nations that lack adequate resources obtain goods and services through _________________. • Which are the main trading partners of the United States? • Germany, Great Britain, China and France • Canada, China, Mexico, and Japan • The Central American countries • Africa, Russia, Singapore, and Malawi • The natural resources and climate of Columbia give that country the ___________________ in coffee production. • An import is: • a small German sports car • a good or service sent to another country for sale • a good or service that is brought in from another country to sale • a good that is only shipped by sea vessel • Absolute or comparative advantage is the ability to produce ________________of a given product with given resources. • The United States imports more than it exports. True or False? • A nation that produces a good or service that has the comparable advantage will be more efficient in creating that good or service than a nation who does not have that advantage. True or False? • Why is a nation with abundant resources better off trading than being self sufficient? • Specialization and lowest opportunity cost leads to efficient use of resources • To breed goodwill among nations • Because they can save their resources for war • So they can become an economic power • Specialization in a nation leads to: • Trade barriers • Comparative advantage • Absolute advantage • International Trade • An export is: • a detached, wall-less covering for an automobile • a good or service sent to another country for sale • a good or service that is brought in from another country to sale • a good or service bought over the Internet

38. TRADE barriers: why do nations sometimes want trade barriers & sometimes don’t?

39. International Standard #2 • SSEIN2 The student will explain why countries sometimes erect trade barriers and sometimes advocate free trade. • a. Define trade barriers as tariffs, quotas, embargoes, standards, and subsidies. • b. Identify costs and benefits of trade barriers over time. • c. List specific examples of trade barriers. • d. List specific examples of trading blocks such as the EU, NAFTA, and ASEAN. • e. Evaluate arguments for and against free trade.

40. ENI2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade. • What is the government’s primary role in a Free Enterprise economy? (think back to unit 1) • Think about why people put up barriers. Name 3 reasons why a government would put up a trade barrier to another country. • Think about why people enter into agreements with each other. Now name 3 reasons why a government would enter into a free trade agreement?

41. ENI2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade. With a partner answer the following: • What is the government’s primary role in a Free Enterprise economy (think back to unit 1)? • To protect the consumer, • protect jobs, • advocate economic freedom 2. Name 3 reasons a government enacts a trade barrier. • Protectionism, • National Security, • Retaliation against another country 3. Name 3 reasons a government enters into a free trade agreement? • To grow the economy by creating new markets, • to compete with other trading blocks, • to increase the variety of products, • promote political and economic freedom, • to increase purchasing power

42. 2a: Define trade barriers as tariffs, quotas, embargoes, standards and subsidies.

43. 2a: Define trade barriers as tariffs, quotas, embargoes, standards and subsidies.

44. 2a: Define trade barriers as tariffs, quotas, embargoes, standards and subsidies. • Import Quotas: limit on the amount of a good that can be imported. • Tariffs:tax on imported goods, such as a customs duty. • Embargo: refusing to trade with a country • Standards: specific guidelines on goods coming into a country • Subsidy: payment from the government to a business to boost the price to help businesses compete with foreign competition • http://www.youtube.com/watch?v=y-EvZOokWR8&safety_mode=true&persist_safety_mode=1&safe=active

45. 2b: Identify costs and benefits of trade barriers over time. 1. Increased ________for Foreign Goods • Tariffs and other trade barriers _________the cost of __________products, making ___________ products more competitive in price. • Although ______________ of many products may benefit from trade barriers, _____________ lose out. 2. Trade W______ • When one country restricts imports, its trading partner may impose its own ____________in retaliation.

46. 2b: Identify costs and benefits of trade barriers over time. • Increased Prices for Foreign Goods • Tariffs and other trade barriers increase the cost of imported products,making domestic products more competitive. • Although manufacturers of many products may benefit from trade barriers, consumers can lose out. • Trade Wars • When one country restricts imports, its trading partner may impose its own retaliatory restrictions.

47. 2b TRADE: Short Term Vs. Long term Benefits & Costs Word Bank:Peace Prices Culture Disposable Jobs Technology Recession Grow Money Economic Societal Cheaper Interdependence Short Term Benefits of Trade Improved T_______________ Cheaper p________________ Consumers retain more _________________ Income Long Term Benefits of Trade Helps a nation g__________ Products are much ________ Promotes global i________________________ Promotes p___________ Short Term Costs of Trade Lose j_________________ Lose M__________________ Possibly move into a r_______________ if severe Long Term Costs of Trade Change in e__________and s_______________ culture Increasingly overwhelming loss of j____________

48. 2b TRADE: Short Term Vs. Long term Benefits & Costs Word Bank:Peace Culture Jobs Technology Recession Grow Cheaper Interdependence • Short-Term • Costs of Trade • Lose _____ • Lose ________ • Possibly R_______if severe • Benefits of Trade • Improved t________ • Products may be __________ meaning more money in consumer’s pockets • Long-Term • Costs of Trade • Change in ________________ • Loss of more ______________ • Benefits of Trade • Helps a nation ______________ • Products can be a lot __________ • Promotes global ______________ • Promotes _________________

49. 2b TRADE: Short Term Vs. Long term • Short-Term • Costs • Lose Jobs • Lose money • Possibly Recession if severe • Benefits • Improve technology • Products may be cheaper meaning more money in consumer’s pockets • Long-Term • Costs • Change in culture • Loss of more jobs • Benefits • Helps a nation grow • Products can be a lot cheaper • Promotes global interdependence • Promotes peace

50. Arguments for Protectionism: using trade barriers to protect a nation’s industries from foreign competition. • Protecting ______ • Protectionism shelters workers in industries that would be hurt by specialization and trade. • Protecting _______ _________ Industries • Protectionist policies protect new industries in the _______stages of development. • Safeguarding _________Security • Certain industries may require protection from foreign competition because their products are ________ to the __________ of the United States.