Download International Trade is trade among the nations of the

International Trade is trade among the nations of the
world.
The world is getting smaller due to technology and
trade between nations is the catalyst to lifting
humanity out of poverty.
I: Globalization:
A: Technological advances: phone, computers,
communications, World Wide Web
B: Comparative Advantage: ability for one country to
produce a good at a relatively lower cost than another country can.
Look carefully at Figure 18.1 why do you think the World Wide Web spread
more quickly than the three earlier inventions? Answer below
• II: Governments and Trade
• A: Policy: plan of action on an issue- economically it is a plan on international
trade
• Exports: something that is produced in the US and then shipped elsewhere.
• Imports: Something produced elsewhere and shipped in the US
• III: Barriers to Trade
• A: Protectionist: the gov't policy seeks to limit imports
• B: Tarriffs: a tax on a good that is imported
• C: Quotas: Limit on the quantity of a particular good during a certain period
of time.
• Embargoes: A government order that restricts commerce or exchange with a
specified country. An embargo is usually created as a result of unfavorable
political or economic circumstances between nations. The restriction looks to
isolate the country and create difficulties for its governing body, forcing it to
act on the underlying issue.
III: Free trade: Lifting of trade
barriers
• A: In 1944, United States and other nations agree to rebuild global
economy on free trade.
• B: IMF (International Monetary Fund) and the World Bank were
created DEFINE EACH
• C: IMF: they foster monetary policy and operations
• D: World Bank: provides assistance to the third world developing
countries to help reduce poverty and help standard of living.
• E: GATT ( General Agreement on Tariffs and Trade) 117 countries:
• F: In 1995, countries under GATT updated and became members of
the WTO (World Trade Organization) What does the WTO do?
IV:• A:Regional
Agreements
European Union:
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1. 2005 25 countries in Europe freely trade with one another
2. build a single market in Europe
3. own currency the Euro
4. most important agreement in Europe
B:
NAFTA (North American Free Trade Agreement)
1. free trade between US, Canada, and Mexico
2. reduced barriers for trade
3. Processed foods and beverages are exported
4. 30% of exports go to Canada and Mexico
• C: CAFTA-DR ( Central American –Dominican Republic Free
Trade Agreement)
• 1. comprehensive trade agreement
• 2. First step to Free Trade Area of the Americas
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Click on the link below, read the article
be able to answer questions in class
tomorrow.
http://useconomy.about.com/od/tradepolicy/p/NAFTA_Histo
ry.htm
V: Financing Trade
• A: A nation’s balance of trade can either be a surplus or
deficit.
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1. Trade Surplus: When the value of goods leaving a
nation is greater than those entering.
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2. Trade Deficit: When the value of goods coming in is
greater than those leaving.
• B: The US uses the dollar as a medium of exchange
• C: Foreign Exchange rate: what the price of one nation’s
currency is in term’s of another country’s currency.
• D: Most nations’ use a flexible exchange rate or one that
allows for the supply and demand of goods to set the price of
various currencies. This means a currency’s price may change
every day.
Explain the effects a trade deficit and trade surplus has on an economy.
How does the exchange rate effect a country’s balance of trade?
• Answer below: When a country’s currency increase in value
(increase in the exchange rate) the currency is considered
strong. That means that people in other countries find the
exports from that country are expensive and trade tends to
decline. If the currency depreciates in value then the opposite
occurs. Exports are less expensive and trade increases.
Putting it all together: Class Activity
Barriers to Trade
Promoting Freer Trade
Tariffs
Eliminating Tariffs
Quotas
Eliminating Quotas
Domestic subsidies
Eliminating subsidies
Limits on sale of technology and other
items
Eliminating limits on technology
Travel restrictions
Eliminating travel restrictions
Immigration policy
Creating an international monetary
system
The first diagram shows how supply and demand affect a nation’s currency exchange
rate. Draw a second diagram that show s how the nation’s currency exchange rate
affects balance of trade. Compare your diagram with those of your partner.
Currency Exchange Rate
(Price of Money)
Currency Exchange Rate
(Foreign Currency per US Dollars)
D
QUANITITY
BALANCE OF TRADE
CURRENCY EXCHANGE RATE
(Price of Money
S
CURRENCY EXCHANGE RATE
(foreign currency per US dollars)
Developing Countries and Globalization
• Of the 200 countries of the world, only 35 are considered
developed.
• These include the US, Japan, Great Britain, China, and Spain.
• Dozens of countries are trying to move to a market based
economy. These countries are DEVELOPING countries. The
IMF, United Nations, and World Bank give them this
classification. Their average per capita income is a fraction of
what is found in the industrialized countries.
• Many of the developing countries operate on the traditional
economic model. Ex: if your parents were fishermen then you
will be a fisherman.
• What do developing countries want in order to raise their
standard of living for citizens?