Global Economy

1. Global Economy Exports of crude oil (Mexico, Canada)

2. Countries trade with one another for one reason: comparative advantage. Comparative advantage is the ability of a county to produce a good at a much lower price than another country can. Comparative advantage allows countries to utilize the idea of specialization. Global Economy • NAFTA- the North American Free Trade Agreement is a trading agreement between the United States, Canada, and Mexico created in the 1994 to allow free trade among these 3 nations. Supporters of NAFTA cite an increase in trade and lower cost goods. Critics cite a loss of jobs to American workers and lax environmental and labor protections.

3. European Union- The EU is an organization of independent European nations who trade freely with one another. The EU includes most major European countries, including England, France, and Spain and began in 1993. Global Economy • WTO- the World Trade Organization began in 1993, and is an international body that oversees trade among member nations around the world. It organizes trade rules and solves disputes for over 150 nations, such as the U.S., Japan, China, and Germany. It replaced the former GATT treaty.

4. All nations must consider their balance of trade, or the difference between the value of the goods they import and the value of the goods they export. Nations favor a positive balance of trade, or trade surplus. A trade surplus means that a nation is exporting, or selling, more goods than it is importing, or buying from other nations. A negative balance of trade means the opposite, and is considered a trade deficit. A trade deficit means a nation is spending more on importing goods than it is earning from selling or exporting goods. Nations become economically stronger on a global scale when they have a trade surplus, and weaker with a trade deficit. Global Economy

5. http://coinmill.com/currency_icon.png A trade surplus or deficit impacts the economy of a country because of the exchange rate, or the price (value) of a nation’s currency in terms of another nation’s currency. For example, in the United States, a trade deficit can be negative to some, and positive to others, as it floods the rest of the world with dollars spent purchasing foreign goods. This devalues, or lessens the “value” of the dollar to the rest of the world, costing Americans more to purchase imports. On the other hand, producers of exports sell more as buyers around the world have more dollars to purchase goods that are now cheaper. Exchange rates are flexible, and thus trade deficits tend to correct themselves over time. Global Economy per capitaGDP, or the GDP of the country divided by the population of the county. The United States’ per capita GDP is around $48,000. This is among the world’s highest.

6. Global Economy Most other countries are developing countries, meaning they produce only a fraction of the average GDP enjoyed in the more powerful nations. Most of these developing countries have traditional economies, based on tradition and family. These countries lack the educated workforce, and the capital, or money, for advanced technologies needed to attain full development. Many of these countries also suffer from war, corruption, unstable governments, and debt incurred from borrowing for economic programs. These countries often find themselves in debt to the 35 fully developed countries of the world.

7. All countries are actually mixed economies, typically combining characteristics of either a commandeconomy, market economy, socialist economy, or traditional economy. Command economies are often found in communist countries. Global Economy Communism is a theory of government based on an equal and common sharing of wealth among all citizens. It was first theorized and created by Karl Marx.

8. More than ever, global interdependence means that people and nations around the world depend upon one another for goods and services. Global interdependence has benefits, such as more profit for producers, lower prices for consumers, and a lessening of political tensions among nations once considered enemies. However problems include a loss of jobs for industries hurt by competition, protectionism, or the placement of tariffs and quotas to protect markets, and trade wars, which lead to higher prices for consumers. Global Economy • The five leading exporters in the world (2006): and importers(2006): • 1. The European Union $1.3 trillion 1. The United States $1.7 trillion • 2. Germany $1.0 trillion 2. The European Union $ 1.4 trillion • 3. The United States $ 900 billion 3. Germany $ 800 billion • 4. China $ 750 billion 4. China $ 630 billion • 5. Japan $ 550 billion 5. United Kingdom $ 480 billion • Global interdependence strengthened primarily as the result of technological breakthroughs. The internet, efficient transportation systems, and communication tools, such as wireless phones and computing, have all lead to a removal of borders in the eyes of producers.

9. Outsourcing, or the use of workers in foreign countries to do work once done by workers in the “home” country, is one such phenomena resulting from the use of technology. For example, United States companies use customer service representatives based in India to handle phone center jobs once performed by American workers. Such actions create job loss for American workers, but increases profits for businesses, and lower costs to consumers. The same outsourcing model ultimately led to the loss of jobs in the textile industry, as companies opted to use cheaper labor in foreign countries, as a way to increase profits, and lower prices for consumers. Global Economy

10. All countries must deal with externalities, or the negative side effects of business and development. Acid rain, resulting from coal burning power plants is an example of an externality. Pollution, like acid rain, has lead to an increase in global conservationism, or protecting the environment, among most nations in the world. A rise in internationalism, or a common concern for all countries around the world, has been the result. Current economic and environmental issues have demonstrated a need for global cooperation among all countries. Global Economy

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