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Unit 4: International Trade

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michelle ashmore

on 19 February 2016

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Transcript of Unit 4: International Trade

Unit 4: International Trade
Why do we trade?
Principles
of
Economic Systems
Internationalism
v.
Protectionism
So, is the US dollar
STRONG or is it WEAK (compared to other nations)??
Who Do We Trade with?
Blocs / Agreements
nations who create an arrangement on how they will decrease trade restrictions between them
GATT
(General Agreement on Tariffs and Trade)
decrease trade taxes (tariffs) and expand worldwide free trade policies
NAFTA
(North American Free Trade Agreement)
arrangement between the US, Canada, and Mexico to reduce barriers in trade
WTO
(World Trade Organization)
global organization that helps producers of goods and services, exporters/importers conduct business.
EU
(European Union)
28 European nations that share a currency and minimal barriers to trade
ASEAN
(Association of Southeast Asian Nations)
10 SE Asian nations agree to decrease barriers
Import Quota
limit on the # of goods that can be imported
embargo
ban on all goods from a nation
Tariff
tax on imported goods
Standard
a minimum quality that a product must have to be imported
BARRIERS
the restrictions placed on trade with other nations.

some are self-imposed while others are forced by the exporting nation.
AGREEMENTS
BARRIERS
Is Trading a good idea?
International Currency...
how is the US doing?
freedom
choice of job, what to buy, what to sell, etc.
competition
make the best goods
voluntary exchange
producers and consumers choose who we want to exchange/trade/barter with
self-interest
do what is best for you
private
property
we can own the factors of production
profit motive
the goal is to make money!
CARICOM

MERCOSUR
*self inflicted
allows domestic producers to have advantage!
* self inflicted
Absolute v Comparative Advantage
trade allows for an increased variety of goods available
EXPORT = what is sold to other nations




IMPORT = what is bought from other nations
balance of trade = when a nation imports as much as it exports

trade surplus= more # exports than # imports

trade deficit = more # imports than # exports


Absolute advantage:

the ability of a nation to make more of a product than another nation.
Comparative advantage:

the ability of a nation to produce a good at a lower opportunity cost than another nation
which nation has
Absolute advantage
in cars?
in trucks?

country B
country B
Which country has comparative advantage
in cars?
in trucks?

will they trade?
country A
and country B
neither
no. they have comparative advantage in the same thing (cars) so they will both focus on making cars
Internationalist
likes trade (agreements)
improves efficiency
consumers have variety
lowest possible prices
increase trade agreements (NAFTA, ASEAN, EU)
Protectionist
increase barriers, restrict trade
Gov't should protect national security. can't rely on other nations for vital goods (oil, military)

help our infant companies from foreign competition

put trade barriers in place

balance of trade and payments
First we need to look at our money in common terms to see how much trade will cost.
exchange rate: our nations currency in terms of another nations currency.
look for the part of the table that =1USD
formula:

FOREIGN TO USD = problem / chart

USD TO FOREIGN = problem x chart
when you get home from a trip... you DIVIDE your laundry
when you go on a trip you multiply your bags with soveniers
1) 50 USD in Euros
2) 100 Australian dollars in USD
going TO Europe... so you MULTIPLY
USD to Foreign = problem x chart
50 x 0.89 = 44.50 Euros
coming home from Australia DIVIDE your laundry
Foreign to USD = problem / chart
100 / 1.29 = $77.51
Strong $ - our currency is MORE valuable than other nations




Weak $ - our currency is LESS valuable than other nations
some benefit from STRONG $
(appreciation: gain value)
When the US $ is strong:
import more (cheaper to buy stuff)
travel abroad more
export less ( our stuff is more expensive)
US companies operate overseas (outsourcing)

* buy more, sell less (deficit)
Some benefit from a weak $
depreciation: lose value
When the US $ is weak...
import less (their stuff is expensive)
travel abroad less (stay within US)
export more (our stuff is cheaper)
foreign companies come to US to produce

*buy less, sell more (surplus)
http://www.investopedia.com/video/play/basic-concept-absolute-advantage/
balance of payments

the difference in total value between payments into and out of a country over a period.
($ Exports-$ imports)
TRADE too much?
*remember in GDP (X-M)...
the only consistently negative component of the US GDP is net exports. This means we have a trade deficit!!!
Products Under US Import Quotas:
Sugar
products with more than 65% sugar content
Tobaccco
Peanuts and peanut butter
Many specific dairy products (e.g. powdered milk, baby formula)
Cotton
Beef
Animal feed
Anchovies
Wire rod
Ethyl alcohol
Olives
Mandarin oranges
Tuna
Brooms
flexible exchange rate:
changes based on supply and demand of a currency in relation to other currencies.

ex: If there is a high demand for US currency, its exchange rate relative to other currencies increases, on the other hand, if there is less demand, its value decreases.

fixed exchange rate:
value is fixed against another currency or another measure of value, such as gold.
US Dollar 1.00 USD
Euro 0.893513
British Pound 0.650606
Indian Rupee 61.868340
Australian Dollar 1.286647
Canadian Dollar 1.253906
Singapore Dollar 1.365473
Swiss Franc 0.958878
Malaysian Ringgit 3.631000
Japanese Yen 120.109317
Chinese Yuan 6.273316
Csonda can grow more turnips than Queoldiola.
Csonda can make more sundials than Queoldiola.
Each nation has to decide what it should spend its time producing...
what would be a wiser use of resources?
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