Transcript International Trade - Jefferson Forest High School

INTERNATIONAL TRADE
OBJECTIVES
Students will describe the reasons why nations
trade with each other
 Students will explain the function of trade
barriers
 Students will discuss the costs and benefits of
free trade agreements
 Students will summarize the function of the
exchange rate and how it affects the trade of
goods and services

WHY DO WE TRADE

People cannot produce all they need
All the food they need
 All the clothes they want
 Building their own car
 Building their own house
 Taking care of their own healthcare
 Etc.
 People tend to specialize in one good or service

 Use
profits or salary to purchase everything else they want or
need
WHY DO WE TRADE

Countries trade with each other in the same
way
 World
 It
trade is important because
give consumers more power by expanding their choices
– many of our choices as consumers are products from
other countries
WHY DO WE TRADE

Countries trade with each other in the same
way
 Countries
produce goods and services that they
export to other countries
 Export
– a good produced in one country and sold to
another country. Exports go out of a country
 Countries
import goods they are unwilling or unable
to produce domestically
 Import
– a good produced in one country and purchased
in another. Imports come in to a country
WHY DO WE TRADE

Countries trade with each other in the same
way
 Who
does the US trade with
 Canada
 China
 Mexico
 Japan
– the largest trading partner
WHY DO WE TRADE

Countries trade with each other in the same way

Leading Exports of US
Chemicals
 Machinery
 Agricultural products






Oranges
Apples
Grapefruits
Pears
Peaches
Computers
 Automobiles
 Aircraft
 Satellites
 Pharmaceuticals

WHY DO WE TRADE

Countries trade with each other in the same
way
 Leading
Imports of US
 Petroleum
 Cars
 Trucks
 Clothing
 Electronics
WHY DO WE PRODUCE

Countries produce things they
 Have
the resources to make
 Land
 Labor
 Capital
 More
skilled at making
 Can make more cheaply than others
BENEFITS OF TRADE
Countries specialize in things they do well
 People enjoy a higher standard of living
 People have a wider variety of goods and
services
 Economic growth for both parties

TRADE BARRIERS

Sometimes countries want to protect domestic
industries from international competition
 Free
trade – the flow of goods and services
between countries without restrictions or special
taxes
 Protectionism - the government’s use of trade
barriers to protect domestic producers
 Why

trade barriers
Sometimes trade is a threat to jobs and income for producers
within a country
TRADE BARRIERS

Sometimes countries want to protect domestic
industries from international competition
 Security
– fear that we will become dependent on
another country for certain goods
 Oil
 Protect
 Often
 Protect
new industries
protected by eliminating foreign competition
industries vital to national interests
TRADE BARRIERS

Countries enact trade barriers
 Quota
– a limit on the amount of a good that can be
imported
 Tariff – a tax on an imported item
 Embargo – a law that bars trade with another
country
 US
maintains embargoes against IRAN, Cuba, and North
Korea
EFFECTS OF TRADE BARRIERS

Trade Barriers
Increase the price of imports making them less
attractive to consumers
 Reduce the volume of trade
 Can result in economic decline


In recent years countries have worked together to
reduce these barriers
Signing free trade agreements
 Allow countries to buy and sell with few restrictions
 Generally result in more exports and imports

FREE TRADE

Benefits
 Increase
in world trade
 Greater world-wide production
 More diverse products available
 Lower prices for consumers
FREE TRADE

Costs
 Companies
 Reduced
 Decline
move production out of the country
employment in some fields
of some industries
 Dependence upon foreign powers
FREE TRADE AGREEMENTS

NAFTA – North American Free Trade Agreement
 Created
in 1994
 United the United States, Canada, and Mexico in a
free-trade zone (no trade barriers)
 Most tariffs eliminated by 2008
 Effect
 Dramatic

increase in trade
From 1993 and 2007


Increased exports from Mexico to US by 437%
Increased exports from US to Mexico by 242%
FREE TRADE AGREEMENTS

European Union
 Began
to reduce internal trade barriers in 1968
 Have a common currency - the Euro
 Goods and labor move freely with few restrictions

Effects
 Increased
prosperity
 Lower prices
CURRENCY
In order to determine the cost of trade,
countries must consider the value of their
currency
 Nations use many different currencies

 US
– Dollar
 Japan – Yen
 Europe – Euro
 Great Britain – British Pound
EXCHANGE RATES

Exchange Rates – determine the value of one
nation’s currency compared to another
 Always
changing
 As the value of one nation’s currency decreases,
another is rising
 Example
- the value of the dollar might be increasing
against the euro while falling against the yen at the same
time
CHANGING EXCHANGE RATES

Why do exchange rates change over time
 Supply
and demand
 Interest
rates – banks and investors buy US treasury
bonds when interest rates are high
 Trade – as more people import US goods, the value of
the dollar increases
EFFECTS ON TRADE

As the dollar increases
Imported goods are cheaper
 Cheaper to travel abroad
 Harder to export to foreign markets
 Fewer tourists come to the US


As the dollar decreases
Easier to export goods
 More tourists come to the US
 Imported goods more expensive
 More expensive to travel abroad

QUESTIONS?
Which of the following situations would most likely occur if the
dollar’s exchange value dropped in relation to the Japanese yen?
A.
B.
C.
D.
US citizens would be able to travel to Japan more cheaply
Imported Japanese goods would become more expensive.
The US would export fewer products to Japan
Fewer Japanese tourists would travel to the US.
QUESTIONS?
Which of the following situations would most likely occur if the
dollar’s exchange value dropped in relation to the Japanese yen?
A.
B.
C.
D.
US citizens would be able to travel to Japan more cheaply
Imported Japanese goods would become more expensive.
The US would export fewer products to Japan
Fewer Japanese tourists would travel to the US.
QUESTIONS?
The British pound, the yen, and the euro are examples of
__________.
A.
B.
C.
D.
exchange rates
currencies
tariffs
quotas
QUESTIONS?
The British pound, the yen, and the euro are examples of
__________.
A.
B.
C.
D.
exchange rates
currencies
tariffs
quotas
QUESTIONS?
When a country enters a free trade agreement, which of the
following issues might be a problem they face?
A.
B.
C.
D.
higher tariffs on imported goods
lower quotas that increase imports
lower prices for consumers in markets
decline in some industries as jobs cross
QUESTIONS?
When a country enters a free trade agreement, which of the
following issues might be a problem they face?
A.
B.
C.
D.
higher tariffs on imported goods
lower quotas that increase imports
lower prices for consumers in markets
decline in some industries as jobs cross
QUESTIONS?
NAFTA is a 1994 __________ between the United States, Mexico,
and Canada.
A.
B.
C.
D.
Free trade agreement
Quota
Tariff
Exchange rate
QUESTIONS?
NAFTA is a 1994 __________ between the United States, Mexico,
and Canada.
A.
B.
C.
D.
Free trade agreement
Quota
Tariff
Exchange rate
QUESTIONS?
When countries create tariffs, they __________.
A.
B.
C.
D.
remove restrictions on imports
place limits on the amount of goods that can be imported
set taxes on imported goods
create common currencies
QUESTIONS?
When countries create tariffs, they __________.
A.
B.
C.
D.
remove restrictions on imports
place limits on the amount of goods that can be imported
set taxes on imported goods
create common currencies
QUESTIONS?
Why are quotas an example of protectionism?
A.
B.
C.
D.
Quotas increase the volume of trade.
Quotas remove restrictions on trade.
Quotas create trade barriers by limiting imports.
Quotas ignore the needs of domestic
QUESTIONS?
Why are quotas an example of protectionism?
A.
B.
C.
D.
Quotas increase the volume of trade.
Quotas remove restrictions on trade.
Quotas create trade barriers by limiting imports.
Quotas ignore the needs of domestic
QUESTIONS?
The United States decides it wants to encourage citizens to buy
televisions that are made in America, so it decides to set a limit
on the number of televisions that can be imported from China
and Japan. This limit is an example of a __________.
A.
B.
C.
D.
tariff
free trade agreement
trade union.
quota
QUESTIONS?
The United States decides it wants to encourage citizens to buy
televisions that are made in America, so it decides to set a limit
on the number of televisions that can be imported from China
and Japan. This limit is an example of a __________.
A.
B.
C.
D.
tariff
free trade agreement
trade union.
quota