Download 13-Why-Countries

Why Countries Trade
Why Trade?
There are two theories on why
countries trade, they both agree that
countries should produce those things
that they are most efficient at making
Absolute Advantage
Theory that we should produce what is
efficient, and trade the surplus for
things that we aren’t efficient at making
Absolute Advantage
Theory that we should produce what is
efficient, and trade the surplus for
things that we aren’t efficient at making
Ex. – we export machinery to Central
America, they export bananas to us
Comparative Advantage
Theory that we should produce those
things at which we are relatively more
efficient at making
Comparative Advantage
Theory that we should produce those
things at which we are relatively more
efficient at making
Ex. – US makes both watches and
airplanes more efficiently than Switzerland
Comparative Advantage
Theory that we should produce those
things at which we are relatively more
efficient at making
Ex. – US makes both watches and
airplanes more efficiently than Switzerland
• However, we are 3x more efficient in airplanes,
2x in watches
Comparative Advantage
Theory that we should produce those
things at which we are relatively more
efficient at making
Ex. – US makes both watches and
airplanes more efficiently than Switzerland
• However, we are 3x more efficient in airplanes,
2x in watches
• Therefore, we should specialize in airplanes
Barriers to Trade
Tariffs – taxes on imports
Barriers to Trade
Tariffs – taxes on imports
3 types of tariffs:
Barriers to Trade
Tariffs – taxes on imports
3 types of tariffs:
Revenue – intended to raise money
Barriers to Trade
Tariffs – taxes on imports
3 types of tariffs:
Revenue – intended to raise money
Protective – to protect US made goods
Barriers to Trade
Tariffs – taxes on imports
3 types of tariffs:
Revenue – intended to raise money
Protective – to protect US made goods
Restrictive – to reduce/eliminate flow on a
product to the country
Barriers to Trade
Quotas – limit on the amount of goods
let into a country (made illegal by GATT
General Agreement of Tariffs and Trade)
Barriers to Trade
Quotas – limit on the amount of goods
let into a country (made illegal by GATT
General Agreement of Tariffs and Trade)
VER (Voluntary Export Restraints)
countries volunteer to set their own
quota on exports to help another
country out
Barriers to Trade
Regulations and Certification – imports
must meet these
The Costs and Benefits of Trade Barriers
Why restrict trade?
The Costs and Benefits of Trade Barriers
Why restrict trade?
Infant Industry – needs to protect young
growing industry from well-established
industry
The Costs and Benefits of Trade Barriers
Why restrict trade?
Infant Industry – needs to protect young
growing industry from well-established
industry
National Security – produce necessary
military products itself
The Costs and Benefits of Trade Barriers
Why restrict trade?
Infant Industry – needs to protect young
growing industry from well-established
industry
National Security – produce necessary
military products itself
Protection of domestic jobs – foreigners
work for less
The Costs and Benefits of Trade Barriers
Why restrict trade?
Infant Industry – needs to protect young
growing industry from well-established industry
National Security – produce necessary military
products itself
Protection of domestic jobs – foreigners work
for less
Maintaining economic stability – can be greatly
disrupted by other countries’ problems
Balance of Trade
Since 1980, US imports more than it
exports (negative balance of trade)
Balance of Trade
Since 1980, US imports more than it
exports (negative balance of trade)
Can be bad for employment, taxes, profits,
economic growth
Balance of Trade
Since 1980, US imports more than it
exports (negative balance of trade)
Can be bad for employment, taxes, profits,
economic growth
Good for fighting inflation, providing low
cost goods
Politics
The US has backed away from Free
Trade, and pushed for Fair Trade
Politics
The US has backed away from Free
Trade, and pushed for Fair Trade
Opposed to the policy of dumping (selling
of products for less than that country can
produce them for)
Politics
The US has backed away from Free
Trade, and pushed for Fair Trade
Opposed to the policy of dumping (selling
of products for less than that country can
produce them for)
In 1989, we published a list of Unfair
Trade Countries, and threats of
retaliation from the US have improved
conditions