GLOBAL ECONOMY AND
INTERNATIONAL TRADE
Today’s Objective
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Why do countries’ need and want to trade with
each other?
Benefits and Costs of Trade
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What is trade? An exchange of goods
Why do we trade with each other?
 People
want and need things they cannot get in their
own country
 Not all countries have the same resources
 Some countries have a climate that allows them to grow
certain goods
Imports and Exports
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Imports: goods and services bought from foreign
countries
U.S. imports oil, machinery and automobiles
Other imports: diamonds, most shoes, raw materials,
and various food items
Exports: goods and services sold to foreign
countries
American exports: capital goods (machinery, farm
tractors, construction equipment)
What is the balance of trade?
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Difference between the value of a country’s imports and its
exports
Country sells more than it buys from other countries has a
favorable balance of trade
Buys more than it sells has an unfavorable balance of trade
U.S. has unfavorable because it imports more than it exports
Trade deficit- We have a trade deficit with Canada,
Mexico, China and Japan because we import more than we
send to those countries
Trade Surplus- Sells more to the countries than it buys from
them (Australia, the Netherlands, Belgium, Egypt and United
Arab Emirates)
Trade and Specialization
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Improves standard of living
Greater choice of products and services
Competition keeps prices low and quality high
Countries have to specialize in products that they can
make
Absolute Advantage: if a country can produce
something more easily and less expensively using the
same resources than a trading partner can (bananas,
coffee, flowers)
Comparative Advantage: if a country can produce a
product or service at a lower cost and more efficiently
than another country (shoes, airplanes)
Trade Barriers
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Restricts or limits trade between countries
Tariff- a tax on imports
Revenue tariff- used to raise money for the government
Import quotas- a restriction on the number of specific
goods that can enter a country
Voluntary trade restrictions- an offer made by a
foreign country to limit the sale of their goods in
another country
Embargo- the act of cutting off all trade with another
country
There are many who are in favor of free trade
Promoting Economic Cooperation
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International trade has increased, business now
have branches in many countries, world’s economy is
now becoming more closely tied together.
This is called globalization
Trade is a way to improve quality of life for their
people
Countries have many ways that they promote trade
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Trade Agreements
General Agreement on Tariffs and Trade (GATT)promote international trade to stop future wars. Signed
after WWII
World Trade Organization (WTO)- Created in 1995 to
replace GATT. Agreed to cut tariffs and import quotas.
North American Free Trade Agreement (NAFTA)- Trade
agreement between U.S., Canada, and Mexico
European Union (EU)- links European countries together
both economically and politically