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Global Economics. Chapter 7. Imports and Exports. Imports—products brought in from a foreign country. Exports—products sent to a foreign country for sale. Why We Trade…. To get products we don’t have. To specialize in items we make efficiently and import those we do not.
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Global Economics Chapter 7
Imports and Exports • Imports—products brought in from a foreign country. • Exports—products sent to a foreign country for sale.
Why We Trade…. • To get products we don’t have. • To specialize in items we make efficiently and import those we do not.
Benefits of trade….. • More consumer choice • Increased competition • Expanded markets • Improved International relations • Increased prosperity and peace
Negative effects of international trade… • Loss of jobs to countries that can produce cheaper products. • Poor quality of imported products
International trade is dependent on a flexible exchange rate…. • Trading partners must exchange currency when they trade. • They must use and exchange rate- (the cost on one currency expressed in terms of another currency) • A flexible exchange rate changes from day to day. • It is determined by supply and demand for various currencies. • Can make the cost of doing international business difficult and unpredictable.
Factors affecting a flexible exchange rate… • Changes in interest rates—(a high interest rate increases the demand for the currency) • Economic and political stability • The strength or weakness of a nation’s currency affects the willingness of other nations to trade with it. (If the US dollar is weak, exports increase and the apposite is true as well.)
Balance of Trade… • The difference between the value of a nation’s imports and exports is called its Balance of Trade. • IF a nation imports more than it exports it has a trade deficit.
Balance of Payments… • This is an accounting of a nation’s financial transactions that involve other countries during a particular time period.
U.S. Trade Deficit…. • We have been running a trade deficit since the 1970’s. • Oil consumption appears to be a leading reason.
TRADE RESTRICTIONS: • Protective Tariffs • A tax on imports • Purpose is to reduce purchases of imported goods • Quotas • A government limit on the quality or value of certain imported products • Tend to raise consumer prices. • Embargos • Government order prohibiting trade • Mainly used for political reasons.
Protectionism vs. Free Trade • Protectionism is a policy of using trade restrictions to protect domestic businesses from global competition. • Free trade is a policy of minimizing trade restrictions.
Arguments for Protectionism • National Security • Job Security for workers • Encourage new industries • Protecting the environment • To eliminate unfair advantages from other countries.
Arguments for Free Trade • Prevents retaliation by other countries • Protectionism creates higher prices for consumers • Allows for specialization • More competition=lower prices or better products to consumers • Protection of national industries can be better helped through subsidies (a form of financial assistance) rather than tariffs.
Trade Agreements…. • GATT (General Agreements on Tariffs and Trade) agreement renewed in 1994 to reduce or remove barriers to trade. • WTO ( World Trade Organization) is an international organization that governs trade between 140 member countries that was developed as a result of GATT. • NAFTA (North American Free Trade Agreement) is a regional agreement between the US, Canada, and Mexico which tries to make trade between these three countries easier. • EU (European Union) is an organization of independent European countries which is trying to create a unified and strong European market. They have been removing trade restrictions between member nations.
