Pedal Power Goes Global

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Pedal Power Goes Global
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Issues Affecting International Trade
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Why do Nations Export

• Sell excess production
• Obtain prices higher then prices they can obtain
  domestically.
• Developing countries export so they can import

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The Benefits of World Trade

• Imports supply many goods and natural resources
• American workers are employed in industries that
  export products abroad.

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United States Imports on a International Scale
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Absolute vs. Comparative Advantage

• Absolute advantage
• ability of country to produce product more
  efficiently than another country.
• Comparative advantage
• ability of country to produce product at a lower
  opportunity cost than another country.

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Specialization

• Nation finds it profitable to produce export a
  limited assortment of goods for which it is
  particularly suited.

US Bike Imports Dropped 15
USA 2008 Bike Market Not Immune to Recession
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Fixed Exchange Rate

• 1945 -1970
• National governments valued their currency in
  relation to a single standard
• Easy to compare different currencies
• Devaluation
• lower a currencys value in relation to other
  currencies by government order
• Fixed
• Difficult to hold exchange rates constant in an
  international economy

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Flexible Exchange Rate

• Supply demand set price of various currencies
• Depreciation
• when a currencys price falls due to supply and
  demand
• Political or economic instability can affect
  currency value

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Balance of Trade

• Positive
• Exports gt Imports

• Negative
• Imports gt Exports

• A trade deficit is not always harmful because it
  encourages foreigners to invest in the U.S.
  economy

US Trade Deficit Increases by Most Since 1999
The trade deficit in the U.S. widened in
September by the most in a decade, reflecting
rising demand for imported oil and automobiles as
the economy rebounded from the worst recession
since the 1930s.
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• Exports
• Machinery and equipment, industrial supplies,
  non-auto consumer goods, motor vehicles and
  parts, aircraft and parts, food, feed and
  beverages.

• Imports
• Non-auto consumer goods, fuels, production
  machinery and equipment, non-fuel industrial
  supplies, motor vehicles and parts, food, feed
  and beverages.

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Gross Domestic Product

• Indicator of economys health
• Three major components
• C Household purchases of final consumer goods
  and services
• G government purchases of goods and services
• I purchases of businesses of capital goods,
• X Net exports exports - imports
• GDP C G I X

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Final v. Intermediate Goods

• Final Goods and Services
• Manicures
• Bread
• Cruise missile
• New factory
• Dresses
• Increase in automobile inventory

• Intermediate Goods
• Window glass in new automobiles
• Lumber in a new house
• Screws used in a cruise missile
• Flour for making bread
• Cloth for making dresses

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GDP Goods Services at Final Destination

• Who buys haircuts, bread dresses?
• Who buys cruise missiles?
• Who buys a new factory or builds up an inventory
  of unsold products such as automobiles?

Households, families, individuals Government Businesses
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Economic Forecasting
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Measurements of Income

• National Income (NI) - total earned by everyone
  in the economy.
• wages and salaries,
• income of self-employed people,
• rental income,
• corporate profits,
• interest on savings and other investments.

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U.S. GDP / Total Population U.S. GDP Per Capita
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United States GDP by Sector
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United States Top Trading Partners
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Ways to Restrict Imports

• Tariff or taxes on imports.
• Revenue tariffs raise income without restricting
  imports
• Protective tariffs raise the cost of imported
  goods to discourage people from buying imports
• Imports quotas limit the number of units of a
  particular good that can be imported

• Embargoes are complete restrictions on importing
  or exporting certain goods.
• Applied to certain countries

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Arguments For or Against Free Trade

• For
• Improved products
• Foreign competition
• Export industries
• Restrictions may jeopardize jobs
• Specialization Comparative Advantage
• Provides improved goods at lower prices

• Against
• Protectionists
• Job security
• Loss of jobs
• National Economic Security
• Protect oil industry from foreign competition
• Infant, new industries
• Tariffs quotas to allow to compete in world
  market

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Trade Agreements

• The General Agreement on Tariffs and Trade (GATT)
  
• U.S. 22 countries in 1947
• Promoted liberalization of trade
• Nations agree on tariff reductions that benefit
  all members
• The World Trade Organization (WTO) was
  established in 1993 to replace GATT
• Farthest-reaching global trade agreement in
  history 140 nations
• Encourages trade
• Administers global trade agreements
• Resolves disputes when they arise

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Regional Trade Agreements

• 1993 North America Free
• Trade Agreement 1993
• United States
• Canada
• Mexico
• Links 439 million people
• Eliminate tariff barriers
• Mexican exports have doubled - 115 billion
• Potentially led to loss of 879,000 U.S. jobs
• Traffic delays along border
• World Trade Bridge 10,000 trucks a day

• European Union
• 27 current members
• Economic integration as single market
• Common currency - Euro
• Barrier free market for goods services
• 370 million European consumers

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