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.