1. Chapter 4 Global Analysis
International Trade
Section 4.1 International Trade
Section 4.2 The Global Marketplace

2. International Trade Objectives Explain the interdependence of nations
Key Terms
international trade
imports
exports
balance of trade
free trade
tariff
quota
embargo
protectionism
World Trade Organization (WTO)
North American Free Trade Agreement (NAFTA)
European Union (EU)
Objectives
Explain the interdependence of nations
Explain the nature of international trade
Discuss the balance of trade
List three types of trade barriers
List three significant trade agreements and alliances that foster worldwide free trade
Marketing Essentials Chapter 4, Section 4.1

3. International Trade Study Organizer
On a chart like this one, organize the key concepts related to international trade.
Marketing Essentials Chapter 4, Section 4.1

4. Global Marketplace Global marketplace =
a worldwide trading system in which goods can be produced wherever the production costs are cheapest and are ultimately sold wherever
market encompassing the whole world
all people and businesses in the world are potential customers, employers, or employees

5. Global Marketplace Why do you think the marketplace is Global?
Countries don’t have all 4 resources
Land, labor, capital, entrepreneurs
Countries don’t produce all the goods & services they need
Need to trade with other countries to obtain products that meet the wants and needs of their people

6. Nature of International Trade
International trade is the exchange of goods and services between nations
Imports X are goods and services purchased from other countries
Exports X are goods and services sold to other countries
These exchanges
Occur between the businesses involved
Are Controlled by the governments involved

7. Interdependence of Nations
Interdependence of Nations: when countries must rely on each other to produce all the goods they need to survive
Why does Economic interdependence occur?
countries do not produce all the goods and service they need
Each country possesses unique resources and capabilities
Have limited resources in one or more of the factors of production
Different countries can produce specific goods such as:
U.S. and Canada: Agriculture
Saudi Arabia and Russia: Oil
India and Japan: Computer science and Technology

8. Two Types of Economic Advantages
Economic Advantage: Where one country does something better than other countries
There are two types of advantages in international trade:
Absolute Advantage
Comparative Advantage

9. China produces 80% of all silk in the world
1. Absolute Advantage
Absolute Advantage: When a country has natural resources or talents that allow it to produce an item at the lowest cost possible
Example:
China produces 80% of all silk in the world
China has an absolute advantage in the production of silk
Marketing Essentials Chapter 4, Section 4.1

10. 2. Comparative Advantage
Comparative Advantage: The value a nation gains by selling what it produces most efficiently
Example:
US produces high-tech products because of strong infrastructure, raw materials and educated labor force
Airplanes, computers, high tech machinery, entertainment, and telecommunications

11. Who Benefits from International Trade
Consumers
Producers
Workers
Nations
All benefit in different ways

12. Benefits of International Trade
Consumers:
competition encourages the production of high-quality goods with lower prices
Producers
gain higher profit by expanding their operations into international markets

13. Benefits of International Trade
Workers
leads to higher employment rates at home and abroad
Nations
foreign investment in a country often improves the standard of living for that country’s people

14. Government Involvement in International Trade
All nations control and monitor their trade with foreign businesses
In the U.S., the customs division of the Treasury Department monitors all imports
All imports into US subject to search and review
All U.S. citizens and firms must meet custom requirements of foreign countries
Marketing Essentials Chapter 4, Section 4.1

15. All nations track their international trade
Balance of Trade
All nations track their international trade
Shows their economic status
balance of trade - The difference in value between the exports and imports of a nation
A positive balance happens when a nation exports more than it imports
A negative balance (aka trade deficit) is when a nation imports more than it exports

16. A trade deficit (negative balance of trade) reduces a nation’s revenue
When more money leaves a country than comes in, the country is in debt or is a debtor nation
Unemployment can also be another negative result of a large trade deficit.
Marketing Essentials Chapter 4, Section 4.1

17. Trade Barriers
Many countries favor and practice free trade - trade that is done purely on free market principles, without restrictive regulations
Other nations impose trade barriers -controls and restrictions that regulate the flow of goods and services

18. Trade Barriers
There are three main types of controls (trade barriers):
Tariffs
Quotas
Embargoes

19. 1. Tariffs
A tariff X is a tax on imports. Also known as a duty, tariffs come in two different types:
Revenue-producing: tax as a source of income for the government
Normally low in price
Protective: raises the price of imports to encourage consumers to buy locally made goods
high price to increase price of imported goods

20. 2. Import Quota
An import quota X limits either the quantity or the monetary value of a product that may be imported
These help local business compete with foreign companies
Ex: quota on cars imported into US so U.S. manufacturers can sell their autos
Some countries will impose their own quota’s on exports to improve relationship with another country

21. 3. Embargos
embargo X a total ban on specific goods coming into and leaving a country
An embargo can be imposed for different reasons:
Poisoned or defective goods
Political reasons
Protectionism X is a government’s establishment of economic policies that systematically restrict imports in order to protect domestic industries
It is the opposite of free trade

22. Trade Agreements and Alliances
Trade Agreements: Governments make agreements with each other to establish guidelines for international trade and to set up trade alliances
Three Trade agreements & Alliances:
World Trade Organization (WTO
North American Free Trade Agreement (NAFTA)
European Union (EU)

23. 1. World Trade Organization
The World Trade Organization (WTO) X A global coalition formed in 1995 of more than 140 governments that make rules governing international trade
Benefits:
Open markets and promote global free trade
Reduces tariffs
Standardizes trade rules
Study important trade issues
Evaluate the health of the world economy

24. 2. NAFTA
The North American Free Trade Agreement (NAFTA) X is an international trade agreement among the United States, Canada, and Mexico
Founded on January 1, 1994
Goal was to get rid all trade barriers between the countries by 2009
Tariffs were eliminated immediately

25. 3. European Union
The European Union (EU) X is Europe’s trading bloc. established free trade among its member nations
Creates a single European currency (euro) and central bank
Maintains competitive practices
Maintains environmental and safety standards
Provides security

26. Key Concepts Related to International Trade
Section 4.1
International Trade
Key Concepts Related to International Trade

27. SECTION 4.1 REVIEW