INTERNATIONAL TRADE WHY? REASON 1: ABSOLUTE ADVANTAGE – WE HAVE WHAT THEY WANT; THEY HAVE WHAT WE WANT OIL VERSUS FOOD

REASON TWO: COMPARATIVE ADVANTAGE WHY DIDN’T MICHAEL JORDAN MOW HIS LAWN? HIS TIME WAS BETTER USED PRACTICING; DOING BUSINESS DEALS, ETC. … AND THEN HIRING OUT HIS LAWN MOWING – EVEN THOUGH COULD MOW THE LAWN FASTER THAN THE SERVICE

TRADEOFFS IN TRADE NORTH CAROLINA ONCE HAD 400,000 WORKERS IN TEXTILE/APPAREL FACTORIES; NOW LESS THAN 100,000 PRODUCTION HAS GONE TO FOREIGN COUNTRIES BUT U.S. CONSUMERS ENJOY LOWER CLOTHING PRICES

WILL WE LOSE ALL OUR JOBS TO LOW LABOR COST COUNTRIES? BUSINESSES CONSIDER MANY FACTORS IN LOCATION: * WORKER PRODUCTIVITY (OUTPUT/COST) * INFRASTRUCTURE * ACCESS TO INPUTS * POLITICAL STABILITY * PROPERTY RIGHTS

U.S. AND NORTH CAROLINA ECONOMIES ARE CHANGING CAN’T COMPETE ON BASIS OF LOW COST LABOR HAVE TO COMPETE WITH HIGHLY SKILLED AND PRODUCTIVE LABOR AND INNOVATIVE COMPANIES

TRADE TERMINOLOGY EXPORTS IMPORTS TRADE SURPLUS TRADE DEFICIT

THE “BALANCING ACT” IN TRADE IF RUN A TRADE DEFICIT, FOREIGNERS ACCUMULATE DOLLARS AND THEN INVEST THEM BACK IN THE U.S. OPPOSITE IF RUN A TRADE SURPLUS - U.S. ACCUMULATES FOREIGN MONEY AND INVESTS IN FOREIGN COUNTRIES

SO, IF RUN TRADE DEFICIT ULTIMATELY “PAY FOR” IT BY SELLING INVESTMENTS LIKE STOCKS, BONDS, AND LAND IS THIS BAD???

CURRENCY EXCHANGE RATE AT WHICH ONE CURRENCY TRADES FOR ANOTHER FLEXIBLE, NOT FIXED $1.50 = €1.00 $1.30=€1.00 ; DOLLAR IS “STRONGER” $1.70=€1.00 ; DOLLAR IS “WEAKER”

WHAT MAKES A CURRENCY STRONGER OR WEAKER? STRONGER: * LOWER INFLATION * HIGHER INTEREST RATES * FASTER ECONOMIC GROWTH WEAKER: * HIGHER INFLATION * LOWER INTEREST RATES * SLOWER ECONOMIC GROWTH

IS A “STRONG” DOLLAR GOOD? DEPENDS WHICH SIDE OF THE EXCHANGE YOU ARE ON “STRONG” DOLLAR GOOD FOR BUYING IMPORTS – MAKES THEM CHEAPER BUT “STRONG” DOLLAR IS BAD FOR EXPORTERS – MAKES U.S. EXPORTS MORE EXPENSIVE IN FOREIGN COUNTRIES

RESTRICTIONS ON WORLD TRADE TARIFF: TAX ON AN IMPORT QUOTA: LIMITATION ON AMOUNT OF IMPORTS

TRADE AGREEMENTS REDUCES TARIFFS AND QUOTAS AND PROMOTES WORLD TRADE NAFTA AND GATT WINNERS AND LOSERS COMPENSATING THE LOSERS?