INTERNATIONAL TRADE

International Trade - DefinitionInternational Trade - Definition

International trade involves the exchange of goods or services between nations.

This is described in terms of – ExportsExports: the goods and services : the goods and services soldsold in foreign in foreign

markets. markets. – ImportsImports: the goods or services : the goods or services bought bought from from

foreign producers. foreign producers.

Try to identify some US exports.

Try to identify some imports for the US

FOR SOME OF YOU THESE ARE YOUR MAJOR IMPORTS……

Free Trade vs. Trade BarriersFree Trade vs. Trade Barriers

Nations can trade freely with each other or there are trade barriers.– Free Trade: Nothing hinders or gets in the

way from two nations trading with each other.

– Trade Barriers: Trade is difficult because things get in the way.

There are costs and benefits related to free trade as well as trade barriers.

Free Trade - BenefitsFree Trade - Benefits

When nations specialize and trade, total world output When nations specialize and trade, total world output or sales is increased. or sales is increased.

Companies can produce for foreign markets as well Companies can produce for foreign markets as well as domestic markets (markets in the home country). as domestic markets (markets in the home country).

This means there is potential for making more money This means there is potential for making more money as there are more markets to sell goods or services as there are more markets to sell goods or services in.in.

More variety of goods are available from a world More variety of goods are available from a world market than just a domestic market.market than just a domestic market.

Prices of goods are decreased through increased Prices of goods are decreased through increased competition.competition.

Free Trade - CostsFree Trade - Costs

The domestic (home) country can lose money because the foreign goods allowed into the market increase competition and make it less likely people will buy domestic products. – Example: In the U.S., people might want to buy a

foreign automobile like a Honda or Toyota instead of an American made car.

Increased competition means lower prices. Less money will go into the domestic market

place and this can cause factories to be closed and jobs to be eliminated.

NAFTA: North America Free Trade Agreement

NAFTAPros Cons

1.

Jobs and factories have been shipped to Mexico, but

supplier is not shipped. In other words, US manufacturer

continue to purchase from their supplier in US

Factories are relocated, and jobs are cut.

2.

Mexico benefits from this trade, since more jobs are created

for low income Mexican people, and help build the Mexican

economy.

The opposite effect is that Americans are

losing their jobs, increase US trade deficit.

3.NAFTA brought in a flood of foreign investment and

contributed to a 24% rise in Mexico's per capita income.

The pact has destroyed Mexico's small

farmers, and bringing in an influx of

subsidized U.S. food imports

4.

Its mission is to increase number of Mexican jobs, increase

standard of living, and thereby decrease the illegal Mexican

immigrants entering US

Data have shown NAFTA is ineffective in

stemming the tide of illegal Mexican

immigrants entering the US to find jobs.

5.US companies near the border are gaining positive results

from NAFTA

US companies away from the border are

gaining negative results from NAFTA,

notably jobs

Trade Barriers – Three TypesTrade Barriers – Three Types

Barriers to trade are things that hinder or get in the way of trading.

They can be cultural, physical , or economic.– Cultural barriers: language, currency,

belief system.– Physical barriers: mountains, rivers, etc.

• Example: The Alps Mountains in Europe– Economic barriers: government rules that restrict,

block or discourage international trade between countries.

Trade Barriers - EconomicTrade Barriers - Economic

The most common trade restrictions are: – tariffs, which are taxes on imports.– quotas, which are limits on the

quantity that can be imported.– embargos, which are a complete trade

block usually for political purposes.

TariffsTariffs

A A tarifftariff is a tax put on goods imported from abroad is a tax put on goods imported from abroad and sometimes referred to as custom duties.and sometimes referred to as custom duties.

It is the most used and most familiar type of trade It is the most used and most familiar type of trade restriction.restriction.

The effect of a tariff is to raise the price of the The effect of a tariff is to raise the price of the imported product. imported product.

It makes imported goods more expensive so that It makes imported goods more expensive so that people are more likely to purchase domestic people are more likely to purchase domestic products. products.

The money received from the tariff is collected by the The money received from the tariff is collected by the domestic government. domestic government.

QuotasQuotas

A A quota quota is a limit on the amount of goods that can be is a limit on the amount of goods that can be imported. imported.

Putting a quota on a good creates a shortage, which Putting a quota on a good creates a shortage, which causes the price of the good to rise and makes the causes the price of the good to rise and makes the imported goods less attractive for buyers. This imported goods less attractive for buyers. This encourages people to buy domestic products. encourages people to buy domestic products.

A quota on shoes, for example, might limit foreign-A quota on shoes, for example, might limit foreign-made shoes to 10,000,000 pairs a year. If Americans made shoes to 10,000,000 pairs a year. If Americans buy 200,000,000 pairs of shoes each year, this would buy 200,000,000 pairs of shoes each year, this would leave most of the market to American producers.leave most of the market to American producers.

EmbargoesEmbargoes

Embargoes are a government order which completely prohibits trade with another country.

If necessary, the military actually sets up a blockade to prevent movement of merchant ships into and out of shipping ports.

Embargoes (con’t)Embargoes (con’t)

The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically and thus undermine the political leaders in charge.

Such was the case with the Cuban embargo which has been in place since the 1960s.

Trade Barriers - BenefitsTrade Barriers - Benefits

Most barriers to trade are designed to prevent imports from entering a country.

Trade barriers provide many benefits:– protect homeland industries from competition– protect jobs– help provide extra income for the government. – Increases the number of goods people can choose

from.– Decreases the costs of these goods through

increased comp

Trade Barriers - CostsTrade Barriers - Costs

Tariffs increase the price of imported goods.

Less competition from world markets means there is an increase in the price.

The tax on imported goods is passed along to the consumer so the price of imported goods is higher.

Trading with China (Trade Deficit)

TRADING WITH CHINA

5. Toys, games: $12.3 billion

6. Clothing (not knit or crochet): $12.3 billion

7. Footwear: $12 billion

8. Plastics: $9.5 billion

9. Vehicles: $8.5 billion

10. Iron or steel products: $8 billion

1. Machines, engines, pumps: $82.1 billion

2. Electronic equipment: $68.1 billion

3. Furniture, lighting, signs: $17.6 billion

4. Knit or crochet clothing: $13.2 billion

China’s exports to US amounted to $325 billion or 17.1% of overall Chinese exports.

TRADING WITH CHINA

6. Medical, technical equipment: $5.7 billion

7. Plastics: $5.1 billion

8. Wood: $4 billion

9. Copper: $3.8 billion

10. Organic chemicals: $3.5 billion

1. Machines, engines, pumps: $12.2 billion

2. Oil seed: $10.7 billion

3. Electronic equipment: $10.1 billion

4. Vehicles: $6.8 billion

5. Aircraft, spacecraft: $6.4 billion

America’s exports to China amounted to $103.9 billion or 7% of overall US exports.

TRADING WITH CHINA

US 2010 trade data:

In 2010, the US trade deficit grew to $497.8 from $374.9 billion in 2009.

America’s trade gap with China for 2010 swelled to $273.1 billion, topping the 2008 record of $268.0 billion.

54%of America’s total trade deficit is generated by unbalanced trade with China.