Download Ch. 26 Section 1

International Trade and Its Benefits
 In 2005, about 10% of all the goods produced in the
U.S. were exported, or sold to other countries.
 A larger amount of goods were imported, or
purchased from abroad
 Importing goods gives Americans products they
might not otherwise be able to enjoy.
 Trade is one way that nations solve the problem of
scarcity
 Nations trade for goods/services because they do not
have them or are unable to make them cheaply.
 We buy bananas from Central America because we do
not have the soil or climate to grow them;
Commercial aircraft are sold to other countries
because they do not have the factories or skilled
workers.
 Comparative Advantage is the ability of a country
to produce a good at a lower opportunity cost than
another country can.
 The U.S. could manufacture electronics but other
countries can make them at a lower cost, so we buy
them from other countries that make them
 Comparative Advantage leads nations to specialize
 Specialization allows countries to use their scarce
resources to produce items better than any other
country
 When a country produces more than their people can
actually use, they sell the extra amount abroad.
 Countries can have a comparative advantage in
particular resources such as Saudi Arabia (oil
deposits), or the U.S. (skilled workers, advanced
technology)
International trade does accomplish two things:
1. Creates jobs
2. Creates new markets

 Foreign countries with a comparative advantage can
sell their product more cheaply than companies
making the product in their own country.
 As a consumer you would likely buy the cheaper
product
 Workers who make the product domestically may lose
their jobs when sales drop
 When this happens, government may step in to impose
trade barriers to protect domestic workers and industry
 Two most common trade barriers are tariffs and
quotas
 A tariff is a tax on an imported good; 20% tariff means
an additional 20% to the final price of a foreign good.
 The goal is to make the price of an imported good
higher than the price of the same good produced
domestically
 As a result, consumers would be more likely to buy the
domestic product.
 However, when people want the foreign product so badly
that higher prices have little effect on demand, countries
have to set quotas.
 Quotas set limits on the amount of foreign goods
allowed into a country (imported)
 During the 1980’s, Japanese cars were so popular that
American autoworker jobs were threatened.
 President Ronald Reagan placed quotas on Japanese-
made automobiles
 In general, trade barriers cost more than the benefits
gained
 Most countries try to achieve free trade with other
nations
 Most countries try to convince other countries to not
pass laws that block or limit trade
 A trend the world has been seeing lately is the
formation of free trade zones among key trading
partners
 The European Union (EU) is an organization of
independent European nations, which formed a huge
market
 Goods, services, and even workers flow freely among
these nations because the EU has no trade barriers
 Since 2002, these countries have been linked even closer
due to the adoption of a common currency, the euro.
 In the 1990’s, the U.S., Canada, and Mexico signed their
own free trade agreement: North American Free Trade
Agreement (NAFTA).
 Elimination of all trade barriers among these countries.
 Since its implementation, trade among the three
countries has grown twice as fast as the separate
economies themselves have grown
 Opponents of NAFTA claimed that American workers
would lose their jobs because U.S. plants would move
to Mexico (cheaper labor, less regulation,
environmental and workers’ rights laws ignored)
 Supporters of NAFTA argue that increased trade
would stimulate growth and put more low cost
products on the market.
 Different nations use different currencies as a
medium of exchange:
U.S. = dollar
Mexico = peso
Japan = yen
 To buy something in Mexico, an American would
have to exchange your dollars for pesos by using
the exchange rate, or the price of one nation’s
currency in terms of another country’s currency
 Most nation’s use an adjustable exchange rate system
which allows supply and demand to set the price of
various currencies; currency prices change each day
 Exchange rates have an important effect on a nation’s
balance of trade.
 Balance of Trade is the difference between the value
of a nations exports and its imports.
 If a nation’s currency depreciates, or becomes weak,
the nation will likely export more goods because its
products will become cheaper for other nations to buy.
 If a nation’s currency appreciates, or becomes
stronger, exports will decline
 When a countries value of exports exceeds the value
of imports, the country has a positive balance of
trade or trade surplus.
 A country is selling more than it is actually buying
 When a countries value of imports exceeds the
value of exports, the country has a negative balance
of trade or trade deficit.
 A country is buying more than it is actually selling
Do you know their meanings?
Scarcity
Export
Tariff
Comparative advantage
Exchange rate
Balance of trade Free trade
Trade barriers Mandatory spending
Fiscal year
Appropriations bill
Intergovernmental Revenue Property tax
Automatic stabilizer Surplus
Revenue
Social security Debt
Quota
Entitlement program Excise tax
Income tax
14th amendment
Progressive tax
Balanced budget
1.
2.
3.
4.
The economy expands
Unemployment rises
Prices are inflated
The economy suffers a recession
1.
2.
3.
4.
The Federal Deposit Insurance Corporation
The Bank of the District of Columbia
The Federal Reserve
The 2nd Bank of the US
 1. What is a revenue?
 2. List and explain 3 major types of U.S. taxes.
 3. How did the Stamp Act of 1765 and the Tea Act
of 1773 lead to the American Revolution?
 4. What was granted by the 16th amendment?
 5. What are intergovernmental revenues?
1.
2.
3.
4.
Minimal government interference
Minimal legal ground rules
Minimal private ownership
Minimal competition between businesses
1.
2.
3.
4.
Natural resources
Labor
Capital
entrepreneurs
1.
2.
3.
4.
Estate taxes
Excise tax
Income tax
Payroll tax
1.
2.
3.
4.
The economy is booming and spending needs to
decrease
The FED is encouraging the national
government to borrow money from private
banks
The FED is attempting to loosen the money
supply to encourage more borrowing by
individuals
Businesses are experiencing record losses in
sales
1.
2.
3.
4.
Money is more easily accessible with CD’s
Savings accounts do not accumulate interest
A person receives greater tax benefits with CD’s
CD’s accumulate higher interest compared to
savings accounts
Labor Unions
 Labor Unions
 Strikes
 Trade Unions
 Injunction
 Industrial Unions
 National Labor
 Right to work law
Relations Board
 Mediation
 Arbitration
 boycott
 Closed shop
 Union shop
 Labor Unions are groups of workers who band
together to have a better chance to obtain higher
pay, benefits and better working conditions
 Out of the 151 million in the civilian labor force,
only 14% of American workers belong to a union.
 That number has been falling since the 1980’s as
we have transformed our economy from
manufacturing to a service based economy.
 Development
 1800s
 Poor working conditions
 Workers fired for no reason
 Workers blacklisted
 Knights of Labor
 1st major union founded in
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1869
Organized all laborers men, women, AfricanAmericans
Terrence V. Powderly
1886 peak of membership at
700,000
Ended in 1900
 American Federation of
Labor (AFL)
 Organized in 1886
 Denied unskilled
workers, women,
African Americans &
immigrants
 Samuel Gompers
 Fought for higher
wages, shorter hours &
benefits for disabled
 By 1900 membership
reached 500,000
Samuel Gompers
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1.
2.
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There are two types of unions:
Trade unions – workers who perform the same
skills
Industrial unions – bring workers together
who belong to the same industry
Organized labor has a three level hierarchy:
 local unions
 national unions
 federations
Union Guessing Game
Amer. Federation of
Federal Employees
Amer. Federation of
Teachers
United American Nurses
American Postal
Workers Union
Airline Pilots Assoc.
 Local unions are made up of workers in a factory,
company or geographic area.
 Usually identified with #s
 Negotiates a contract with a company and
monitors the contract terms
 Represents the National unions agenda, while at
the same time representing the desires of their
constituents
 National unions are the individual craft or
industrial unions that represent local unions
nationwide
 Help employees set up local unions and negotiate
contracts
 In certain industries, the national union negotiates
the contracts for the entire industry
 At the Federation level is the AFL-CIO
 Represents 13 million workers nationwide
 From 1955-2005, represented virtually all
unionized workers in the U.S.
 Closed Shop – Companies hire only union
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members
Union Shop – Workers must join the union
after a specified time
Agency Shop – Not required to join a union,
but must pay dues
Open Shop – Companies may hire workers
regardless of membership
Modified Union Shop – Workers given an
option to join a union after hiring
 In the past, some labor unions supported closed
shops, when a worker would have to first belong
to a union to be hired by a company.
 This was banned by the Taft-Hartley Act 1947
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
Stopped the practice
of closed shops
 A common arrangement today is the union
shop, which allows companies to hire anyone
as long as they join the union shortly after
they begin working
 One part of the Taft-Hartley Act banned this
practice as well.
 22 states have passed right-to-work laws,
which prevent mandatory union membership
required by union shops
 What we see in the South are modified union
shops, in which workers do not have to join a
union, but if they do join have to remain a
member for the duration of their employment.
 A majority of workers must vote in favor of a
union before one can be formed.
 The National Labor Relations Board makes
sure union votes are carried out honestly
 Process where union leaders & employers discuss
employment terms

Once workers choose to be represented by a union,
the union is responsible for carrying out collective
bargaining.
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1.
2.
3.
4.
5.
6.
Union and company representatives meet to
discuss conditions of employment such as:
Wages
Work hours
Working conditions
Grievance procedures
Benefits
Work rules and responsibilities
Compromise is the issue
3 steps
Negotiation – Labor & management
meet to discuss contract issues
Mediation – A neutral 3rd party hears
both sides
Federal Mediation & Conciliation
Service provides a mediator
Arbitration – 3rd party makes a final
decision for a compromise. Has the
power of a judge and both sides agree to
accept the arbitrators decision.
Many African countries have:
1. Traditional Economies
2. Command Economies
3. Market Economies
4. Laser Taser Watches
 Worker/Union
 Strikes – workers refuse to work
 Picketing – used to discourage other
workers from working
 Boycott – Refuse to purchase goods or
services from the company
 Scab – Worker willing to work on company
terms
 Business/Management
 Lockout - in which the company blocks workers from
entering the workplace until they accept their contract
terms.
 Blacklist – A list of people who are denied employment
 Businesses hope the loss in income will convince
workers to accept the companies position.
 Can ask the courts to issue an injunction, a legal order
from the court preventing some activity (strike)
Ex. 1995 MLB season
 In severe or extreme labor-management dispute,
government may get involved.
 Can seize operations of an industry until conflict is
settled.
Ex. 1946 U.S. seized the coal industry because of
the countries need for this energy source.
Operation of the mines continued, until labor and
management came to an amicable agreement
Strike
Scabs/Strikebreakers
Picketing
Violence
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1869 – Knights of Labor founded
1882 – First Labor Day parade
1886 – AFL founded
1892 – Homestead Strike
1911 – Triangle Shirtwaist factory fire
1912 – Bread and Roses strike; Dept. Labor founded
1914 – Ludlow Massacre
1920 – Women get right to vote in US
1946 – Largest strike wave in US history
1947 – Taft-Hartley Act
1955 – AFL and CIO merge
1970 – Occupational Safety and Health Act passed (OSHA)
1981 – President Reagan breaks air traffic controllers strike
2013 – Union membership hits 97 year low (14.3 million union
members, 11.3% of population)
If an item has competing brands it
is defined as:
1. Complimentary
2. Mr. Freeze
3. Inelastic
4. Elastic
 Right to Work States
 Prevents unions from forcing workers to join
 Movement of Human Capital
 Rust belt – the North
 Sun belt – the South
 Factories & businesses moved from the rustbelt
to the sunbelt
 Weather was better
 Cheaper labor
 No existing unions
 White collar vs. Blue collar jobs
 White Collar = upper management
 Lot of news on white collar crime in big
business. Example: Enron, Merrill Lynch
 Blue Collar = working class, usually doing
manual labor
Right to Work States in Blue
Blue Collar Workers
Right to Work States – Why it matters?
1.
2.
3.
4.
Rust Belt
Sun Belt
White Collar
Blue Collar