The Dynamics of International Trade and Trade Barriers

1. Chapter 17 International Trade

2. SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade a. Define trade barriers as tariffs, quotas, embargos, standards, and subsidies

3. Trade Barriers • Law passed or action taken by the government of a country to restrict the flow of goods and services between itself and other countries • Tariffs • Embargos • Quotas • Voluntary Export Restraints (VER) • Standards • Subsidies

4. Trade Barriers Tariff • tax on imported goods, discourages consumers from buying those goods Embargo • total ban on trading due to political disputes (Cuba) Import Quota • limit on the quantity of a good that can be imported into a country

5. Trade Barriers Voluntary Export Restraint (VER) • reduction in exports, done to encourage another country to reduce trade barriers Standards • Requirements a good must meet before it can enter the country as an import Subsidies • Government transfer payment to exporting companies allowing them to compete with other nations at the international market price.

6. SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade b. Identify costs and benefits of trade barriers over time.

7. Costs/Benefits of Trade Barriers Tariffs • Provides revenue to importing country’s govt and protects domestic producers. • Higher prices for consumers • Inefficient use of resources Quotas • Protection for domestic producers • Limited availability for consumers, no matter how much they are willing to pay

8. Costs/Benefits of Trade Barriers Standards • Protects consumers from unsafe or poor quality products. • Protects producers making good products. • Consumers may pay more or have limited quantities Subsidies • Protects producers in infant industries • Protects domestic jobs • Taxpayers pay for the subsidy.

9. Costs/Benefits of Trade Barriers Protectionism • Preserve jobs and industries in your country • Save jobs that would go to countries with cheap labor • Protect an infant industry that needs time to develop • Protect national security for critical industries needed in a war

10. SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade c. List specific examples of trade barriers

11. Trade Barriers - Examples 2002 U.S. Tariffs on Steel • After bankruptcies of several us steel companies, President Bush issued tariffs on imported steel. • European countries retaliated with tariffs on U.S. Steel • U.S. withdrew the tariff in 2003 after WTO came out against them. U.S. Embargo against Cuba (1960-present) • Almost total ban of trade between U.S. and Cuba • Motivated by political opposition to Cuban govt.

12. Trade Barriers - Examples U.S. Agricultural Subsidies • U.S. government provides transfer payments to agricultural businesses to allow U.S. farmers to compete in world market where prices are lower. USDA Labeling Standards • Government requirement that all foods entering U.S. have proper nutritional and ingredient labeling. • To protect consumers and equalize requirements of domestic producers

13. SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade c. List specific examples of trading blocs such as EU, NAFTA, and ASEAN

14. TRADE ORGANIZATIONS • Make a web on a piece of paper and in each circle list a type of trade organization and describe it

15. Trade Organizations

16. Current Free Trade Agreements Reciprocal Trade Agreement Act 1934 • Gave FDR authority to adjust tariff rates, and power to negotiate bilateral trade agreements without prior congressional approval. • U.S. grants “normal trade relations” status to trade partners

17. Current Free Trade Agreements • World Trade Organization (WTO) • Acts as a referee in trade to reduce tariffs and restrictions • 149 Members

18. Current Free Trade Agreements • European Union (EU) • Unified economy of 27 European countries • Many EU countries use a common currency (Euro) to further reduce obstacles to trade. • Allows free movement of goods and workers across borders

19. Current Free Trade Agreements North American Free Trade Agreement (NAFTA) • Eliminates trade barriers between Canada, the U.S., and Mexico

20. Current Free Trade Agreements ASEAN • Association of South East Asian Nations • 10 countries in SE Asia • To promote free trade, economic growth, and collaboration between member nations

21. SSEIN2: Explain why countries sometimes erect trade barriers and sometimes advocate free trade e. Evaluate arguments for and against free trade

22. Arguments for Trade Barriers Protectionism • Protecting infant industries that need time to develop. • Protecting national security for critical industries needed in a war. • Protecting domestic employment. • Protecting workers in developing countries from unfair labor practices. • Protecting the environment in developing countries.

23. Arguments for Free Trade • Cheaper prices on many imported goods results in higher standard of living for all countries. • Free trade, efficient production leads to new industries and new jobs within those industries. • Environmental standards usually improve as developing nations become more industrialized and as the standard of living increases. • In the long run, developing countries tend to provide more rights and better conditions for workers as the labor force becomes more educated and richer.

24. Review • Quia.com • Unit 4 Quiz: Trade and Trade Barriers