8 Why Nations Trade?One country has natural resources that another country lacks or has in short supply.The U.S. has very little of the mineral bauxite (used for making aluminum). Almost all of the bauxite used in the United States today is imported.
9 Why Nations Trade?Nations can increase productivity and wealth by specializing in what they produce more efficiently and trading for goods they produces less efficiently
10 Benefits of Trade Consumer choices: Increased competition: Some consumer goods would not be availableIncreased competition:Foreign trade brings additional competitors to the marketplaceBenefit of increased competition?Expanded markets:Business that produce goods and services for export to other countries benefit from an expanded market for their products
11 Benefits of Trade International relations: Prosperity and peace Countries that export many goods and services to the U.S. are likely to want to promote good relations with the U.S. governmentProsperity and peaceU.S. consumers buy imports, they send dollars abroad. (The other country can prosper)
12 Currencies and TradeWhen two countries with different currencies want to do business with one another, the buyer must convert its money to the sellers currencyA hospital in Mexico wants to buy medicine from a U.S. company would exchange its currency, pesos, for U.S. dollars. ( A bank would perform the currency exchange)
13 Exchange RateThe cost of one currency expressed in terms of another currencyWhat is our dollar worth???
14 Factors affecting Exchange Rates Changes in interest ratesEconomic and political stabilitySupply and DemandAmount of National DebtTrade Deficit
15 How exchange rates affect trade If the U.S. dollar is weak, exports from the U.S. tend to increaseWhy?Other countries get a bargain rate when converting their currency to U.S. dollars
16 Understanding the trade deficit Balance of Trade:Difference between the value of a nation’s exports and it imports
17 Trade deficitWhen a country spends more in imports than in receives for exports; US has a trade deficit
18 Balance of PaymentsAn accounting of all its financial transactions that involve other countries during a particular time period.
20 Trade Restrictions and Agreements Chapter 7.2Trade Restrictions and Agreements
21 Ways to Restrict Trade Tariff: a tax on imports There are different types of tariffsRevenue tariff: intended simply as a source of gov’t ___________Protective tariff: larger (up to 62%)The tariff is paid by the importer, who then adds it to the price charged to consumers. The much higher price of imported goods discourages consumers from_____________revenuebuying
22 Ways to Restrict Trade Continued Import Quota: government limit on the quantity or value of certain imported productThe U.S. government has placed quotas on peanuts, cotton, sugar, and carsIt raises consumer ________________prices
23 Ways to Restrict TradeEmbargos: gov’t order prohibiting trade. It can apply to a specific type of product or to trade with a specific country
24 Protectionism Versus Free Trade Protectionism: Policy of using trade restrictions to protect domestic businesses from foreign competitionFree Trade: Policy of minimizing trade restrictions
25 Arguments for Protectionism National security: Certain kinds of computers, software, and nuclear technology cannot be exported without gov’t approvalJob security: If companies that can’t compete against cheaper foreign products, they are forced out of business and U.S. workers lose their jobEnvironmental protection: Trade restrictions against countries that have few environmental laws could reduce the demand for their products, reducing pollutionUnfair advantages: Gov’t can place a high tariff on imported goods of a country that tries to sell their product below market cost.
26 Arguments for Free Trade Effect on exports: Other countries often retaliate with their own trade restrictionsEffect on consumers: Free trade allows for more consumer choicesBenefits of competition: Competition from imports can spur U.S. firms to improve their production efficiency and the quality of their products
27 Trade AgreementsGeneral Agreement on Tariffs and Trade (GATT): Goal was to reduce or remove trade barriersIn 1947, 90 countries signed thisWorld Trade Organization (WTO): international organization that governs trade between over 140 nations. They agree to specific rules that guarantee certain trade rights and lower trade barriers
28 North American Free Trade Agreement (NAFTA) regional trade agreement between the U.S., Canada, and MexicoWent into affect on 01/01/94Designed to give legal protections to investors and international businesses in all three countriesUnder NAFTA trade is ______________growing
29 European UnionOrganization of independent European nations whose goal is to create a unified and strong market