Global Interdependence Obj Chapter 26, Sect. 1 and Chapter 27, Sect.1

International Trade Solves the problem of scarcity Nations trade to obtain goods & services they cannot produce efficiently ◦ Eat fruit in the winter (U.S.) ◦ Buy a computer with an operating system & components developed in the U.S. (South Africa, Vietnam, etc.) Exports ◦ Goods sold in another country Imports ◦ Goods purchased from other countries

Four Reasons Nations Trade 1. Comparative Advantage: The ability of a country to produce a good at a relatively lower cost than another country can 2. Specialization ◦ Using scarce resources to produce those things that they produce better than other countries ◦ Can lead to over-production; producing more goods than can be consumed by all the people of a country  Surplus exported to other nations

3.Create Jobs ◦ By exporting goods, companies can take larger orders for a good than just producing for their nation alone 4. Factors of production ◦ Based on natural resources that are needed where they cannot be accessed or do not exist  Saudi Arabia (oil) ◦ Can be based on sources of capital or labor  U.S. (Airplanes, weapons or educated workers)

Restrictions on Trade Tariff ◦ Tax on imported goods ◦ Goal is to make imports more expensive than similar goods produced domestically (cars) Quotas ◦ Limits on the amount of foreign goods imported ◦ Used when higher prices on imports do little to stop individuals from purchasing them

Free Trade Zones -Agreement b/w multiple nations to eliminate tariffs on goods & restrictions on number imports & exports NAFTA (North American Free Trade Agreement) 1994 ◦ Canada, U.S. And Mexico ◦ Eliminate barriers over time European Union (EU) 2002 ◦ 27 member nations ◦ No trade barriers,16 EU nations use one currency “the Euro”

Globalization (interdependence) We live in an era where nations are dependent upon one another for: goods & services (products) natural resources and labor (factors of production) Trade b/w nations is a process of competition and cooperation

Trade Agreements The cost of most trade barriers are higher than their benefits  Fiscally and politically Most countries aim to achieve free trade ◦ Countries join together with a few key trading partners to increase trade ◦ WTO (World Trade Organization)  Oversees trade among many nations of the world  Negotiates trade rules  Helps developing nations  Settles trade disputes  Critics say it favors corporations over nations

Balance of Trade Exchange rate: the price of a nation’s currency in terms of another nation’s currency Balance of trade: the difference b/w the value of a nation’s imports and it exports Trade surplus: positive balance of trade Trade deficit: negative balance of trade ◦ Can devalue a nation’s currency in terms of exchange rate ◦ Leads to surplus of money in the exporting nation ◦ Devalued currency can lead to decrease in incomes and employment in the importing nation

Benefits of Global Trade Positive: ◦ Businesses can make more profit ◦ Greater competition b/w businesses can lead to lower prices and more choices Negative: ◦ Competition may force out weak companies which can impact national economies (U.S. car industry) ◦ May lead to protectionism: countries place tariffs on imported goods

Global Issues Growing economic inequality b/w rich and poor nations Warfare and famine often leads to refugees: people who leave their nation unwillingly Due to a lack of economic opportunity in developing nations, there is increased immigration: people leaving their nation willingly to live in an industrialized one United Nations (UN): since 1947 has promoted internationalism to help support economic development & foster parity b/w industrialized and developing world

Industrialized nations ◦ US, UK, Germany, Japan, Canada, France ◦ Have natural resources such as coal or iron (or access to it) ◦ Large industries ◦ Consume much of the world’s natural resources

Developing Nations ◦ Chad, Belize, Albania ◦ Often have few natural resources ◦ Cannot feed their population ◦ Manufacture few products ◦ Low life expectancy (40 yrs.) and literacy Saudi Arabia, Venezuela, India Possess great wealth of natural resources Many were once colonies of industrialized nations May be developing industry and human capital

Use your notes to answer 1. Why do nations trade with each other? 2. What is the difference between an import and an export? 3. How does comparative advantage influence trade? 4. How do tariffs and quotas restrict trade? 5. What is NAFTA? Why do countries engage in free trade? 6. Describe one positive and one negative aspect of global trade. 7. Name 2 industrialized and 2 developing nations. What are the characteristics of these nations?