International TradeChapter 4.1

Bell Ringer

•Examine your clothing tags and possessions . Where were they made?

•Locate the countries on www.freeworldmaps.net

Objectives• 0422.11.1 Distinguish between imports and

exports. • 0422.11.2 Discuss the interdependence of

nations. • 0422.11.3 Explain the advantages and

disadvantages of international trade.

• 0422.11.4 Discuss the U.S. balance of trade.• 0422.11.5 Identify trade barriers, trade

support and trade agreements.

International Trade

•Exchange of goods and services among nations

•Global Marketplace exists because countries need to trade with one another.

International Trade

•Imports – goods and services purchased from other countries

•Exports – goods and services sold to other countries

Interdependence of Nations

•Fundamental to Global Marketing•No nation can produce or manufacture

everything they need•Each country has unique resources and

capabilities

International Trade

•Absolute Advantage – country has natural resources or talents to produce item at the lowest cost possible▫China – 80% of world’s silk

International Trade

•Comparative Advantage – value nation gains by selling what it produces most efficiently▫Specialize in products or services▫Emerging nations – advantage in labor-

intensive industries Large, unskilled, low cost labor force

Assignment: Graphic Organizer•Make a T-graphic organizer listing the

advantages and disadvantages of international trade

International Trade

International Trade

Advantages•Lower prices•Variety of goods increase•Increase sales and profits•Stabilize seasonal market fluctuations•Reduce dependence of existing markets•Enhance potential for expansion of

business•Sell excess production capacity

International Trade

Disadvantages•Loss of domestic jobs•Domestic industries may not be able to

compete (US steel industry)•Increased environmental pollution and

environmental problems (China)•Increase Dependencies on others.

Government Involvement

Balance of Trade – difference in value between exports and import of a nation

•Trade Surplus – positive balance – sell more than buy

•Trade Deficit – negative balance – buy more than you sell

U.S. Trade Deficit

•World’s biggest exporter•Purchase more goods than other nations•Focus on providing services rather than

manufacturing and farming•Reduces a nations’ revenues – more

money leaves than comes in

U.S. Trade Deficit

•Debtor Nation – rely on foreign investors to buy U.S. securities

•Increase Unemployment – lose jobs to foreign competitors who take business away from domestic business

Trade Barriers

Restrictions on Trade•Free Trade – commercial exchange

between nations that is conducted on free market principles– without restrictions

Trade Barriers

Tariff or Duty --- tax on imports•Produce Revenue•Protective – purpose of raising price of

imported goods to protect domestic products and jobs

Protective Tariff or Duty

•In 2002 George W. Bush ordered tariffs on steel imported from overseas. Russia, China, Brazil and other developing nations were being accused of dumping steel on American markets., and despite raising their productivity by shifting production from the obsolescent big mills to efficient mini-mills, domestic producers still couldn’t compete against the cheaper foreign steel.

Trade Barriers

•Quota – limits the quantity or monetary value of a product that can be imported

•Embargo – total ban on specific goods coming into or leaving a country▫Health Reasons▫Political or diplomatic reasons (Cuba)

Trade Barriers

•Protectionism – government establishes economic policies to restrict imports in order to protect domestic industries ▫Opposite of free trade

•Tariffs•Quotas•Other countries can retaliate•Subsidizing domestic industries

Trade Agreements and Alliances•Common goal to establish trade

guidelines•Set up trade alliances

▫Making it easy to buy and sell goods between the members of the alliance

▫Making it harder for other countries to sell into the alliance

Trade Agreements and AlliancesWorld Trade Organization (WTO)•Coalition of nations•Make rules governing international trade•Successor to General Agreement on

Tariffs and Trade (GATT)•Created to police agreements and resolve

disputes•Protect intellectual property rights

Trade Agreements and AlliancesSupporters of WTO•Borderless Economy•Universally accepted rules•Ensure fairness and avoid damaging trade

wars

Trade Agreements and AlliancesCritics of WTO•Labor rights•Environment•Non-elected body given power to overrule

government

Trade Agreements and AlliancesNorth American Free Trade Agreement

(NAFTA)•Between United States, Canada, Mexico•Effective January 1, 1994•Rid all trade barriers and investment

restrictions

Trade Agreements and AlliancesEuropean Union (EU)•Europe’s trading bloc•Established 1992•Free trade among member nations•Single European currency (euro)•Central Bank

Multicultural Activity

•Textbook page 78 Case Study•The New Calcutta•What is the biggest drawback about

outsourcing jobs to Calcutta?

321 Summary

•3 trade barriers•2 trade alliances•1 type of trade advantage