Presentation on theme: "The United States and the Global Economy"— Presentation transcript:
1 The United States and the Global Economy How do countries trade in the global economy?
2 Why is global trade growing in importance? Definition of “global economy”: the system of markets and trade that link the countries of the world.Dramatic growth in the last half of the 20th century:Result of advancements in transportation, communication, and shift of types of goods being produced and traded. EXAMPLES?Comparative advantage:Country has an advantage when it can produce a good or service at a lower opportunity cost than competitors. Advantage is based on factors such as climate, factors of production, and technology. EXAMPLES?
3 What goods and services do countries trade? United States is the world’s largest importer and a top exporter!Top trading partners for U.S. (2009)Canada, China and MexicoJapan, Germany, UK, South Korea, France, Netherlands, Taiwan65% of US tradeNorth American Free Trade Agreement (NAFTA), 1994US, Canada, Mexico – tariff barriers to agricultureAdvantages of foreign trade:Great consumer access to goods and servicesCheaper productsImproves standard of livingExchange of ideasNegative effects of foreign trade:Outsourcing
4 How and why do countries regulate trade? Protectionists versus Non-ProtectionistsDebate the concept of “free trade”Unrestricted movement of goods are services across bordersMost countries are “protectionist”Restriction of imports to shield domestic markets from foreign competitionProtective TariffsDesigned to protect an aspect of a country’s economyTaxesImport quotasVER (Voluntary export restraints)GATT (General Agreement on Tariffs and Trade, )Japanese cars?History in the United States?
5 How is global trade financed? Foreign exchange is the process of converting one currency to another.Exchange rates (a value in terms of another currencyDepreciation: occurs when one currency loses value relative anotherAppreciation: occurs when one currency gains value relative to anotherExample: China’s devaluation of the YuanStrong or weak dollarsStrong means higher exchange rate and will trade for more foreign currency than a weak dollar (will buy more)Fluctuation of exchange ratesWhen rates are tied to supply and demand, exhange is “floating”Non-floating is when countries measures its currency against a major currencyBalance of tradeThe difference btw the values of a country’s exports and importsTrade surplus: exports more than importsTrade deficit: imports more than exports