Objectives Explain why international trade is needed. Describe issues in international trade.
Explain why international trade is needed. Objective
May be in the same country May be in the same country Often, in different parts of the world Often, in different parts of the world Why trade with someone they never see?Why trade with someone they never see? To get the best products at the lowest prices To get the best products at the lowest prices To get products available only from other countries To get products available only from other countries Producers benefit because buyers represent new, profitable markets.Producers benefit because buyers represent new, profitable markets. Economic journeys occur when producers and buyers trade.Economic journeys occur when producers and buyers trade. Both the producers and buyers should benefit from international trade.Both the producers and buyers should benefit from international trade. Will you?Will you?
Types of Trade Domestic Occurs when producers and buyers are located in the same country Example: Fresh pears grown in Oregon and marketed in Ohio International Takes place when a product is produced in one country and consumed in another Television sets are often made in Japan or South Korea. Shoes are often made in Malaysia or China. Stereo speakers are built in Canada.
Countries can import or export goods and services. Imports are goods or services that are bought from producers in other countries. ImportsExports Exports are goods or services that businesses sell to other countries. Buyers of exports include: Individuals (importers)Individuals (importers) BusinessesBusinesses GovernmentsGovernments
General Examples: The United States exports manufactured goods, chemicals, and food.The United States exports manufactured goods, chemicals, and food. Canada exports machinery and transportation equipment.Canada exports machinery and transportation equipment. The Tucci family of Seattle imports LavAzza coffee, the largest selling coffee in Italy. Originally operated from the family’s garage, the growing business, known as Italia Imports, sells other items including distributorships to other people.
Most countries have government agencies that regulate imports to make sure that imports: Meet legal requirementsMeet legal requirements Are safe for consumersAre safe for consumers Exporters find markets for their goods and services in other countries. They must comply with local and foreign trade regulations.They must comply with local and foreign trade regulations. They are responsible for shipping the goods to their foreign importer.They are responsible for shipping the goods to their foreign importer. National, regional, and local government agencies help exporters find new customers.National, regional, and local government agencies help exporters find new customers.
Businesses can benefit by engaging in international trade. Example: If you and a friend have the exact same CD collection, there would be no reason to trade CDs. If you and your friend had 10 different titles in your respective collections, you could trade your less favorite CDs for ones that you like. Both you and your friend benefit from this trade.
Businesses can benefit by engaging in international trade. Countries have different resources and trade to get other resources they need. A country might produce some goods better or more cheaply because of: Easy access to raw materials Up-to-date technology Workers with special skills Countries are generally more efficient when they produce goods and services for which their resources are best suited.
Types of Trade Advantages An absolute advantage occurs when one nation has the ability to produce a good or service with fewer resources than another nation. Countries specialize in products they can make at a lower cost than other countries. U.S.-based Boeing manufactures large passenger aircraft. Australia doesn’t have the resources to produce passenger jets. Therefore, the U.S. has an absolute trade advantage over Australia in jet production.
Types of Trade Advantages Comparative advantage occurs when a country can produce a product at a more efficient level than other nations. Italy and Portugal can produce high-quality shoes and cheese. Because labor costs are lower, Portugal has an economic advantage over Italy in shoe production. If Italy has more resources and is more efficient in cheese-making, they have a comparative advantage in cheese production. Portugal would benefit by producing more shoes than it needs so it could trade with Italy for cheese. Similarly, Italy could still make shoes but would benefit more by making cheese and trading it to Portugal for shoes.
Specific benefits of international trade include: A better variety or quantity of goods and services An improved standard of living for the citizens in both countries Access to and availability of scarce resources, such as oil and diamonds Lower prices for goods and services due to increased competition Possible exchange of ideas and technology among countries Enhanced relations among trading countries Increased income for the shipping and/or airline industry due to increased freight and tourism
Describe issues in international trade. Objective
Factors Affecting International Trade Technological advancements such as satellites, cell phones, and the Internet help bring the world “closer together” and foster international trade.
A Nation’s Bank Account A nation uses an annual accounting record (balance of payments) to track all of its monetary transactions with other countries and includes: ExportsImports Foreign aid Business investment abroad Money spent by tourists
A Nation’s Bank Account Two components make up the balance of trade. Money coming into the country (exports and money spent by tourists) increases balance of payments. reduces the balance of payments. Money going out of the country (imports, foreign aid, and business investment abroad) A nation creates a favorable balance by having more money coming in than going out.
The balance of trade is the difference between the two components of a nation’s balance of payments. A trade surplus exists when the country exports more goods than it imports. A trade deficit exists when a country imports more than it exports. A nation can have a positive balance if other monies coming in offset the trade deficit.
Competition Competition forces companies to keep prices low and produce better products. American automakers compete with car manufacturers in Japan, Mexico, Germany, and South Korea. This has led to changes in U.S. business practices. Businesses must continue to evaluate their products to stay competitive.
Competition Competition is good for the economy. Keeps the economy lean and efficient. Forces companies to produce quality products or be forced out. Factors affecting a country’s ability to compete worldwide include: InflationInflation High unemployment levelsHigh unemployment levels Government supportGovernment support New, emerging economiesNew, emerging economies
Competition Challenges that nations face in terms of competition include: Training their workforce to compete in the global economy Investing in factories and equipment Obtaining adequate wages for all workers Protecting the environment Finding new trading partners and dealing with trade barriers
Strength of a Nation’s Currency Currency values “float” or change in relation to currency of other countries due to economic factors and political events. Examples: Consumers, investors, and tourists lost confidence in the Argentine peso after two Argentine presidents resigned in 10 days. As a result, the peso experienced a 70% drop in value. In the 1990s, the U.S. dollar was worth 20 to 30 cents more than the Canadian dollar. American tourists could get more for their money, which increased tourism and helped the Canadian economy.
Strength of a Nation’s Currency Strong currency values increase imports from countries with weak currency values because foreign goods are less expensive to buy. Because the Japanese yen is one of the strongest currencies in the world, the Japanese are able to buy more imported goods that cost less. A weak currency will generally decrease imports but will increase exports. The Chinese government sets the value of its Chinese yuan artificially low. Chinese exports are high and imports are low. The Chinese must pay more for imported goods than people in other countries. To overcome exchange rates, some European countries use the same currency. Some European countries using the euro believe it increases competition, lowers prices, and creates a predictable and stable economy.
Cultural and Political Differences Cultural differences include: LanguageLanguage ReligionReligion ValuesValues CustomsCustoms Social relationshipsSocial relationships Political systems International traders must be aware of the stability of a country’s political system.International traders must be aware of the stability of a country’s political system. They should know the protection a country affords foreign traders.They should know the protection a country affords foreign traders.
Government Control of International Trade International trade affects a country’s economy. Imported products provide citizens with more choices and usually lower prices. Exported products provide citizens more domestic jobs. Protectionism occurs when a nation’s government attempts to control trade with other countries. Reasons for protectionism: To avoid trade deficitsTo avoid trade deficits To protect domestic industries against foreign competitionTo protect domestic industries against foreign competition
Government Control of International Trade Results of protectionism: Provides more employmentProvides more employment Reduces competitionReduces competition Causes consumers to pay higher prices at homeCauses consumers to pay higher prices at home Creates trade problems with other nationsCreates trade problems with other nations
Governmental Control of International Trade Trade barriers that governments use to limit trade: Tariffs: Taxes on certain goods Quotas: Limits placed on amount of exports or imports that move into or out of a country Licenses: Permits that nations use to regulate the amount of imports or exports into or out of their country Product standards: Specifications that products must meet before they can be imported into a country Product Standards U.S. cars CubaEmbargo: Barrier that suspends all import-export trade with another country
Government Support of International Trade Establish organizations The European Union has united its members into one economy. Global organization that deals with the rules of trade between nations
Government Support of International Trade Create trade agreements The North American Free Trade Agreement (NAFTA) has eliminated almost all trade barriers between Canada, U.S., and Mexico. The mission of the General Agreement on Tariffs and Trade (GATT) is to expand world trade and improve international trade relations.
Government Support of International Trade Use other methods of improving international trade relations: Trade centers: Offices and display rooms in major foreign cities that assist importers and exporters Trade missions: Groups of business executives and government officials who travel to foreign countries to promote trade between two countries Trade talks: Communication channel that helps settle disputes and improve the climate for international trade
Government Support of International Trade Encourages growth of multinational corporations (MNCs) Organizations that conduct business in several countries
The United States imports just over 64 percent of its oil supply. Variety of factors affect what is paid at the gas pump. How can U.S. lower its dependence on oil imports? Drill in Alaska? Use less oil by driving fuel-efficient vehicles? Discussion Questions 1.Should the U.S. keep relying on other countries to supply its oil? 2.Should the U.S. tap into its own natural resources? 3.Can the U.S. balance its resource needs and protect its natural environment?
Select a product that you would like to import and sell. Conduct research to find countries or businesses that produce the item. Determine if any of the countries are subject to embargoes by accessing the Internet: http://treas.gov (U.S.) http://www.dfait-maeci.gcca/trade/sanctions-en.asp (Canada) Determine how the identified embargoes would affect your ability to buy and sell the product.
Digital-based photography sources: COREL CORPORATION People of the World Obj. B: #239007, #239027, #239066 Photos copyright 1993 Corel Corp. Carling Ave., Ottawa, Ontario, Canada K1Z 8R7 DIGITAL STOCK CORP.; Business & Agriculture Obj. A: #039 Manufacturing & Industry Obj. B: #028 Photos copyright 1998 Corbis Corp. 750 Second Street, Encinitas, CA 92024
Digital-based photography sources: DIGITAL VISION LTD.; Hands in Business Obj. A: #0301601 Teenagers Today Obj. A: #130241 Asian Business Obj. B: #343002 Photos copyright Digital Vision Ltd., all rights reserved. 833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5 HEMERA PHOTO OBJECTS Obj. A: #italflag, #portufal, #cheesepl, #wshoes9 Obj. B: #usflag, #usflag42 Photos copyright Hemera technologies Inc., 1997-2000 P.O. Box 79092 Hull, Quebec, Canada J8Y 6V2
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