International Trade and Global Economics

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International Trade and Global Economics

• Basic Terms
• Comparative Advantage- Producing a good at lower
  cost than another country. For Example The U.S.
  can produce oil but not as cheaply as Saudi
  Arabia.
• Absolute Advantage- When a country is able to
  dominate a market and produce more of a product.
  For example 1) 90 of the worlds emeralds are
  produced in Columbia. 2) Afghanistan dominates
  the worlds opium market. 3) South Africa
  dominates the worlds diamond market.

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• II. Barriers to International Trade
• A. Tariffs- A tax on imported goods.
• 1.Protective Tariff- A tariff that is high
  enough to protect domestic (U.S.) goods. For
  example General Motors has been losing money to
  Honda and might file bankruptcy. The U.S.
  might try to protect General Motors by issuing a
  high tariff on Japanese autos.
• 2.Revenue Tariff- A tariff that is meant to
  make money for the government. Example During
  the Great Depression, the U.S. government
  introduced the Smoot- Hawley Tariff Act which
  increased the tax on foreign goods. The tariff
  backfired because European countries raised
  their tariffs which ultimately hurt consumers
  worldwide.

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• B. Quotas- The total amount of goods coming into
  a country that is controlled. Example The U.S.
  might issue a quota for Nike shoes coming from
  China allowing them to only ship 200,000 pairs.
• C. Other Barriers
• 1. Food/Health Inspections Example Mexican
  food growers have complained for years that the
  U.S. health inspections are too strict.
• 2. Licenses- Example The U.S. is thinking about
  requiring Mexican truck drivers to pass U.S.
  tests in order to get a license.

Average hourly wage of a textile worker around
the world.
Note the amount paid for the labor that went
into making a 100 dress.
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• D. Arguments for Protection
• 1. Protectionists- People who favor tariffs,
  quotas and other barriers to trade in order to
  support American businesses.
• 2. National Defense
• a. If a country relies on
• other countries for
• imports this might be
• very damaging during a
• war time situation.
• Example Where would
• the U.S. be if Saudi
• Arabia cut off oil to the
• U.S.?

Many people argue that both wars with Iraq were
fought to protect natural resources that are
vital to the survival of our country.
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• 3. Infant Industries Argument
• a. New Industries need to be protected against
  foreign competition. Example European companies
  supported Airbus with subsidies so that Airbus
  could compete with Boeing.
• 4. Protecting Domestic Jobs
• a. Jobs will be lost if there are low or no
  tariffs. Example The steel industry has been
  lost to foreign competition.

Most steel industry work is now found in foreign
countries.
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• 5. Keeping the money at home
• a. If money is spent on foreign products then
  U.S. money will not be spent by American workers
  and owners.
• 6. Helping the balance of payments
• a. Balance of payments- The difference between
  money paid to and received from other countries.
• b. Trade Deficit- More money is spent on imports
  than on exports. Example The U.S. has a huge
  trade deficit with China and Japan.

The trade deficit with China was over 103
billion in 2003.
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• E. The Free Trade Movement
• 1. Most Favored Nation Clause/Status- The U.S.
  will lower tariffs with other countries that
  lower their tariffs.
• 2. GATT/General Agreement of Tariffs and Trade-
  A trade agreement by over 100 nations to lower
  tariffs worldwide. In 1994 the World Trade
  Organization enforced this agreement.

World Trade Organization Protest in Seattle,
Washington.
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• 3. NAFTA/North American Free Trade Agreement- The
  agreement which was proposed under Bush and
  approved by the Clinton Administration, lowered
  taxes of goods coming into the United States from
  Canada/Mexico and vice versa. The agreement was
  met with fierce political battles started by
  unions.

Protest in Mexico over the lives lost crossing
the border. One of NAFTAs goals was an attempt
to curb Mexican immigration.
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• III. Comparative Economic Systems
• A. Communism
• 1. Ownership of Resources- All productive
  resources are government owned and operated.
• 2. Allocation of Resources (How things are given
  out)- The government distributes all resources.
• 3. Role of the Government- The government makes
  all economic decisions.
• 4. Example north Korea controls all factors of
  production which have included producing missiles
  for other countries

Kim Jung Il of North Korea runs the closest thing
to a pure communist government
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• B. Advantages
• Security- workers are guaranteed a job and the
  government provides health care, education and
  other needs.
• C. Disadvantages
• 1. People have little or no say in their jobs.
• 2. Pay is determined by the government and is
  often the same as everyone else.
• 3. Lack of motivation to succeed.
• 4. Lack of planning by the government

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• IV. Socialism
• 1. Ownership of Resources- Basic productive
  resources are government owned and operated.
  Other businesses are privately owned and
  operated.
• 2. Allocation of Resources- The government
  plans ways to allocate resources in key
  industries.
• 3. Role of Government- Government directs the
  completion of its economic plans in key
  industries.
• Examples In Canada, the government owns and
  controls the Health Care system

Health care is usually provided for in a
government that is socialistic.
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• A. Advantages- A mixture of Capitalism and
  Communism, Socialism provides education, health
  care, and welfare without being owned by the
  government.
• B. Disadvantages
• 1. Not as efficient as capitalism
• 2. High taxes
• 3. Slow economic growth
• Example Sweden has a socialist economy, but
  its citizens pay 55 in taxes.

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• V. Capitalism
• 1. Ownership of Resources- Productive resources
  are privately owned and operated.
• 2. Allocation of Resources- Capital for
  production is obtained through the lure of
  profits in the market.
• 3. Role of the Government- Government may
  promote competition and provide public goods.

Wall street during the 1920s
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• A. Advantages
• 1. Individuals have the freedom to buy and
  sell as they please.
• 2. Producers do not have to worry about the
  government getting involved. Question Do
  producers in the U.S. have this freedom?
• 3. Capitalism has the freedom to change based
  upon consumer demand. Example In India,
  computer companies had to wait years before the
  government could approve a business and in the
  meantime they lost millions of dollars.

New building like this in Mumbai, India would
have been non-existent 15 years ago. India is
now a capitalistic country due to the easing of
governmental control
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• IV. Developing Countries
• Should we Care?
• 1. Over 1.2 billion people live on less than 1
  a day.
• 2. Developing countries could provide income
  for industrialized countries. For example If
  Coke sold just 10 cokes to every Chinese person
  in a year and made 10 cents on each one they
  could realize a profit of over 1.2 billion
  dollars.
• 3. Desperate people do desperate things. For
  example The U.S. is concerned that North Korea
  might try to something desperate because their
  country is starving to death.
• //www.uscb.org/cchd/povertyusa/multi.htm

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• B. Obstacles to Economic Development
• 1. Population
• Example India does not have the food or the
  natural resources to support its people.
• 2. Natural Resources
• Example The country of Jordan has virtually no
  natural resources, but is seeking to educate its
  population.
• 3. Education and Technology
• Example Most developing countries have a
  population that is illiterate.
• 4. Foreign Debt
• Example Brazil has vast natural resources, but
  owes American and European investors billions of
  dollars.

Brazil has a thriving stock market and tourism
industry, but is hampered by an uneducated
individuals and foreign Debt.
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