Presentation on theme: "Chapter 6: The United States in the Global Economy"— Presentation transcript:
1 Chapter 6: The United States in the Global Economy Several economic flows link the US economy with that of other nations:Goods & ServicesCapital & Labor (Resource)Information & TechnologyFinancial
2 U.S. & World Trade U.S. is the world’s leading trading nation U.S. depends on imports for many food items; raw silk; diamonds; natural rubber; oilU.S. exports agricultural, chemical, aircraft, machine tools, coal & computer productsU.S. imports >> exports: TRADE DEFICIT
3 U.S. Trading Partners Most U.S. trade is w/ industrialized countries Canada is largest trading partnerSizeable trade deficits:JapanChina
4 U.S. Trade DeficitsMust be financed by borrowing or earning foreign exchangeSelling U.S. assets through foreign investment in the U.S.U.S. borrows from citizens of other countriesU.S. is world’s largest debtor nation
5 Trade Growth Factors Transportation technology improvements Communication technology allows traders to make deals in trade & global finance very easilyTrade barriers have decreased since WWIITrend toward free trade continues
6 Comparative Advantage David Ricardo: It benefits a person/country to specialize & exchange even if that person/nation is more productive than potential trading partners in all economic activities.Specialization should take place if there are RELATIVE cost differences in production of different itemsA nation has a comparative advantage in some product when it can produce that product at a lower opportunity cost than a potential trading partnerSpecialization & trade can have the same effect as an increase in resources or technological progress
7 Government & TradeProtective Tariffs: Excise taxes or duties on imported goods used to protect domestic producers, making foreign goods more expensiveImport Quotas: Maximum limits on number or total value of specific imports.Nontariff Barriers: Licensing requirements; unnecessary, bureaucratic “red tape”Export Subsidies: Promote sale of products abroad.
8 Why do governments enact trade barriers? Misunderstanding the Gains from TradeDon’t understand benefits from tradeOnly see damage in domestic industries that can’t compete successfully w/ importsPolitical considerationsCosts to Society: Harm domestic consumers with higher than world prices for protected goods.
9 World Trade Organization (WTO) WTO oversees trade agreements & rules on trade disputes for 140 nations.Criticized for having rules crafted to expand trade & investment at expense of workers & environmentPraised for promoting free trade as means of elevating output, income, and higher SOL
10 European Union Initiated as Common Market in 1958 Now has 25 member nations (as of May 2004)Trade Bloc: Group of countries having common identity, economic interests, and trade rulesEuro: common currency among most EU countries
11 North American Free Trade Agreement (NAFTA) Free Trade Zone established in 1993 between Canada, U.S. & MexicoCritics feared loss of American jobs to cheaper MexicoResults:Increased domestic employmentReduced unemploymentIncreased SOL
12 Chapter 6 Study Questions 2: U.S. & World Trade10: Multilateral Trade Agreements