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International Trade Chapter 17. Exports  Goods and services sold to other countries.  Countries export what they specialize in.

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Presentation on theme: "International Trade Chapter 17. Exports  Goods and services sold to other countries.  Countries export what they specialize in."— Presentation transcript:

1 International Trade Chapter 17

2 Exports  Goods and services sold to other countries.  Countries export what they specialize in.

3 Imports  Goods and services that one country buys from another country.

4  It can be cheaper for a country to import a product than to manufacture it.  This is why we have absolute and comparative advantage.

5 Absolute Advantage  This is when a country can produce a product more efficiently than another country.

6 Example  Hawaii has the perfect climate to grow pineapples.  Georgia does not have a great climate to grow pineapples.

7  T/f, Hawaii has an absolute advantage over Georgia in growing pineapples.

8 Comparative Advantage  Ability to produce a product relatively more efficiently, or at a lower opportunity cost.

9 Example  Hawaii is great at producing pineapples, but they are also great at producing coconuts.  Puerto Rico is also great at producing pineapples and coconuts.

10  Hawaii can produce pineapples and coconuts cheaper and easier than Puerto Rico.

11  Hawaii can produce pineapples and coconuts at a lower opportunity cost than Puerto Rico can.

12 Restricting Trade  Tariff  Quota

13 Tariff  Tax placed on imports to increase their price in the domestic market.

14 2 Types  Protective tariff – tariff high enough to protect less- efficient domestic industries.  Revenue tariff – tariff high enough to generate revenue for the government without actually prohibiting imports.

15 Quotas  Keeps foreign goods out of the country.  Can be as low as 0 to keep everything out.

16  Need quotas because sometimes even high tariffs can’t keep certain foreign goods from being imported.

17 Examples  Bush administration put a quota on steel.  This protected American steel jobs, but it made steel cost more.

18 Embargo  Completely restricts all trade with a particular country.  Involuntary

19 Trade Protection  Protectionists – favor trade barriers that protect domestic industries

20  Free Traders – favor fewer or even no trade restrictions

21 5 Arguments 1. National Defense 2. Promoting Infant Industries 3. Protecting Domestic Jobs 4. Keeping the Money at Home 5. Balance of Payments

22 National Defense  Argue that nations without trade barriers become too dependent on other nations.  Might need supplies for wartime and could be unable to get them.

23 Infant Industries  New industries should be protected from foreign competition  Want trade barriers (for at least a short time)

24 Domestic Jobs  Tariffs and quotas protect domestic jobs from cheap foreign labor.  Most used argument.

25 Keeping Money at Home  Limiting imports will keep American money in the United States.  Counter-argument: American money that goes abroad will come back anyways.

26 Balance of Payments  Difference between the money paid and received from other nations when they engage in international trade.

27 WTO  World Trade Organization  Created in 1974 by 23 countries

28  Signed the GATT (General Agreement on Tariffs and Trade)

29  WTO is an international agency that administers previous GATT trade agreements, settles trade disputes, organizes trade organizations, and provides technical assistance and training for developing countries.

30 NAFTA  North American Free Trade Agreement  Between Mexico, Canada, and the U.S.  Proposed by Bush Sr. and finalized by Clinton in 1993

31  Reduces tariffs among the 3 countries.  Helps ensure that we stay trading partners.  Example of free trade theory.

32 Foreign Exchange  The changing of foreign currencies when goods and services are bought and sold

33 Exchange Rate  Fix the price of one currency so you can compare it to another.  $1.00 (U.S. $) =.84 cents (Euro)

34 Trade Deficit  When the imports exceed the number of exports.  The U.S. has a trade deficit right now.

35 Trade Surplus  When exports exceed imports.


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