10 Chapter Business in a Global Economy pp. 146-159

Learning Objectives After completing this chapter, you’ll be able to: Explain why nations need to trade with each other. Describe how currency exchange works. continued

Learning Objectives After completing this chapter, you’ll be able to: State the advantages of protectionism and free trade. Name types of trade barriers. continued

Learning Objectives After completing this chapter, you’ll be able to: Identify some of the major trade alliances in the world today.

Why It’s Important Global trade doesn’t just influence business, it also affects all the countries and people of the world.

Key Words multinational company imports exports exchange rate balance of trade protectionism continued

Key Words tariff quota embargo free trade

Technology’s Influence on Business We are all part of the global marketplace. The global marketplace exists anywhere business crosses national borders.

Technology’s Influence on Business Countries can satisfy their citizens’ wants and needs by buying them in the global market.

The Global Marketplace A multinational corporation is a company that does business in many countries and has facilities and offices in many countries around the world.

The Global Marketplace The global marketplace works much like a shopping mall or a supermarket.

The Global Marketplace The United States is rich in resources—human, natural, and production—but it still needs things from other countries.

Name the product that the United States exports more than it imports. Figure 10.1 MAJOR EXPORTS AND IMPORTS OF THE UNITED STATES Look at the graph to see what products the United States imports and exports. Name the product that the United States exports more than it imports. Source: Standard & Poor’s

Specialization Countries specialize in producing certain goods and services. By specializing, countries can sell what they produce best so they can buy the products they need from other countries.

Specialization The kinds of resources available to a country often influence what it specializes in producing.

Specialization A country with little money or advanced technology but a large population might specialize in manual labor.

Making an Ethical Decision What are the benefits and drawbacks of a global economy for the United States? What are the benefits and drawbacks of globalization for people living in underdeveloped countries? continued

Making an Ethical Decision How can underdeveloped countries break into world markets? Should prosperous, industrialized nations monitor labor issues in other countries? If so, how? If not, who should monitor these issues?

Types of Trade Imports are goods and services that one country buys from another country. Exports are goods and services that one country sells to another country.

Types of Trade Other types of trade include: Investment Exchange of human resources Tourism Military aid Loans

Currency Countries have to pay for each other’s products with currency. Currency is another name for money. Just as countries use different lan-guages, they use different currencies, such as dollars, pesos, and yen.

Currency The foreign exchange market is made up of banks where different currencies are exchanged.

Exchange Rates The exchange rate is the price at which one currency can buy another currency. Exchange rates change from day to day and from country to country.

Exchange Rates How much the currency of a country is worth depends on how many other countries want to buy its products.

Prices A company follows the change in exchange rates to find the best prices for products.

Prices When the value of a country’s currency goes up compared to another country’s, it has a favorable exchange rate.

Prices When the value of a country’s currency goes down compared to another country’s, it has an unfavorable exchange rate.

Prices Some countries choose to lower the value of their currency to bring in more business.

Balance of Trade Balance of trade is the difference in the value between how much a country imports and how much it exports.

Balance of Trade When a country exports more than it imports, it has a trade surplus. When a country imports more than it exports, it has a trade deficit.

Balance of Trade A country can have an unfavorable balance of trade with one country and a favorable balance with another.

How Exchange Rates Affect the Graphic Organizer Graphic Organizer How Exchange Rates Affect the Balance of Trade More exports than imports Trade surplus (leftover money) Weak Currency FAVORABLE BALANCE OF TRADE More imports than exports NEGATIVE BALANCE OF TRADE Trade deficit (debt) Strong Currency

Fast Review Give examples of how countries specialize based on the types of resources they have. continued

Name types of trade between countries other than imports and exports. Fast Review Name types of trade between countries other than imports and exports. Why would a country want to devalue its currency?

Global Competition Global competition often leads to trade disputes between countries. At the heart of most trade disputes is whether there should be limits on trade.

Protectionism Protectionism is the practice of putting limits on foreign trade to protect businesses at home.

Protectionism Some of the reasons in favor of protectionism are: Foreign competition can lower the demand for products made at home. continued

Protectionism Companies at home need to be protected from unfair foreign competition. Industries that make products related to national defense need to be protected. continued

Protectionism The use of cheap labor in other countries can lower wages or threaten jobs at home. A country can become too dependent on another country for important products like oil, steel, or grain. continued

Protectionism Other countries might not have the same environmental or human rights standards.

Trade Barriers To limit competition from other countries, governments put up trade barriers to keep foreign products out.

Trade Barriers A tariff is a tax placed on imports to increase their price in the domestic market.

Trade Barriers A quota is a limit placed on the quantities of a product that can be imported.

Trade Barriers An embargo is when the government decides to stop an import or export of a product.

The Friendly Asian Markets Many Asian markets are friendlier to smaller American companies. Consultant Robert Azar works with U.S. businesses that want to plant roots in Asia. continued

The Friendly Asian Markets According to Azar, Asian businesses may perceive a large company as a threat. In contrast, they often see smaller ones as someone they can join up with. continued

Analyze This is good news for what type of business ownership?

Free Trade Supporters of free trade believe there should be no limits on trade.

Free Trade The benefits of free trade are: It opens up new markets in other countries. It creates new jobs, especially in areas related to global trade. continued

Free Trade Competition forces businesses to be more efficient and productive. Consumers have more choice in the variety, price, and quality of products. continued

Free Trade It promotes cultural understanding and cooperation between countries. It helps all countries raise their standard of living.

Trade Alliances To reduce limits on trade more countries are forming trade alliances with each other. In a trade alliance, several countries merge their economies into one huge market.

Trade Alliances NAFTA (North American Free Trade Agreement) was controversial because some workers would be displaced when trade barriers were lowered.

Trade Alliances Some of the major trade alliances in the world today are: NAFTA European Union (EU) Association of Southeast Asian Nations (ASEAN)

MAP OF TRADE ALLIANCES IN THE WORLD Figure 10.2 MAP OF TRADE ALLIANCES IN THE WORLD The European Union (EU) is the oldest and best-known economic community formed to promote free trade among the members of the community and to foster common economic policies. What nations make up the European Union?

International Business and Finance Affects Everyone Understanding international business and finance has become increasingly important for the consumer, wage earner, investor, citizen, and business leader.

International Business and Finance Affects Everyone An understanding of international business helps you understand why goods and services are at particular prices.

International Business and Finance Affects Everyone The business leader of tomorrow will have a good grasp of international business and finance.

What are some of the major trade alliances in the world today? Fast Review What is a trade war? What are some of the major trade alliances in the world today?

Why do small companies seek to do business globally? continued

How does the cost of natural resources affect the average family? continued

How do affordable, energy efficient homes protect the environment? continued

How can a small company influence the economy of another country?

10 End of Chapter Business in a Global Economy