Presentation is loading. Please wait.

Presentation is loading. Please wait.

Ch. 16: International Trade CIE3M1-01 M. Nicholson.

Similar presentations

Presentation on theme: "Ch. 16: International Trade CIE3M1-01 M. Nicholson."— Presentation transcript:

1 Ch. 16: International Trade CIE3M1-01 M. Nicholson

2 International Trade Canadians have become accustomed to consuming goods & services from all parts of the world Canada is part of a global trading system sells its own goods & services to other countries (exports) buys goods & services from other countries (imports)

3 Why Do Nations Trade? Absolute advantage – the ability of one person, region or country to produce a good or service at a lower cost than a competitor’s Comparative advantage - the ability of one person, region or country to provide a good or service relatively more cheaply (i.e. lower opportunity cost) than a competitor

4 Gains from Trade Based on Comparative Advantage Canada (10 wkr)12 tonnes12 computers1.0 computer1.0 tonnes paper Mexico (20 wkr)3 tonnes9 computers3.0 computers0.33 tonnes paper PaperComputers of 1 tonne of paper of 1 computer Hypothetical Output Per Worker Opportunity Cost Why should Canada trade with Mexico if we have absolute advantage? If Canada & Mexico do not trade how much Paper / Computer produced? Assume they split their workforce between Paper & Computers

5 Total Gains from Specialization Canada (10 wkr) 60 tonnes60 computers120 tonnes0 computers Mexico (20 wkr)30 tonnes90 computers0 tonnes180 computers 90 tonnes150 computers120 tonnes180 computers PaperComputersPaperComputers Before TradeAfter Trade

6 Barriers To International Trade Protective tariffs – taxes imposed on imported goods in order to raise the price and lower the quantity sold Embargo – ban against the import or export of a good (e.g. cocaine)

7 Barriers To International Trade Quotas – a restriction on the amount of foreign foods that may be imported Red tape – government can use bureaucracy to delay or even prevent the importing of foreign goods

8 Arguments Against International Trade Infant industry argument Vital industries argument Cheap foreign labour argument Employment argument

9 International Trade And The Circular Flow

10 domestic & international trade is similar  both have specialization but currency exchange needed for international trade Canada’s trade partners – biggest trading partner is USA with 80.3% of Canadian exports going there and 73% of imports coming from the USA EU and Japan 2 nd and 3 rd most significant

11 International Trade And The Circular Flow Visible and invisible trade – merchandise trade is visible, tangible goods whereas tourism, services, investment income and money transfers are not visible or tangible Canadian merchandise trade  trade surplus Capital movements – purchase and sales of foreign and domestic bonds and stocks

12 International Trade And The Circular Flow Balance of payments – is the summary of all the visible, invisible and capital transactions over a year Balance of trade – difference between visible exports and imports (Bal Of Trade = Vis Exports – Vis Imports) Balance of trade on current account - difference between visible and invisible exports and imports (Bal of Trade Cur Acct = Vis/Inv Exports – Vis/Inv Imports)

13 Exchange Rates Exchange rate is the price of one currency expressed in terms of another currency Canadian = Foreign  divide (e.g. $10 Cdn = ? £  1 £ = $2 Cdn  $10 ÷ $2 = 5 £ UK) Foreign = Canadian  multiple (e.g. 200 Jap = ? $  1 ¥ = $0.01 Cdn  200¥ x $0.01 = $2 Cdn) Flexible exchange rates – supply and demand for a currency determine its price relative to other currencies

14 Exchange Rates Fixed exchange rates – governments intervene in the foreign currency market to maintain the price of their currency relative to some other currency (e.g. US $) Canada has had both types and now prefers a mixture of the two called a managed or dirty float

15 Exchange Rates Causes a) British Exports ↑ b) British Interest Rates ↑

16 Freer Trade Since WW 2 ended in 1945 countries realize increased international trade increases prosperity and helps prevent war General Agreement on Trade and Tariffs (GATT)  World Trade Organization (WTO) European Union (EU) – most Western European countries

17 Freer Trade

18 Auto Pact of 1965 – great benefits to Canada through economies of scale lowering costs and increasing workers wages Canada – U.S. Free Trade Agreement, 1987 North American Free Trade Agreement (NAFTA), January 1, 1994 – 363 million people, $6.25 trillion GDP (Canada / USA / Mexico)

19 NAFTA 1. Canada – can sell telecommunications and banking services, will buy manufactured goods 2. Mexico – great opportunity for economic prosperity, but fear the efficient USA producers and USA culture 3. United States – hope Mexico stabilizes and stops flow of illegal immigrants into America, but fear businesses will move to lax Mexico where costs are lower  loss of USA jobs

20 Summary

Download ppt "Ch. 16: International Trade CIE3M1-01 M. Nicholson."

Similar presentations

Ads by Google