why countries trade to understand why countries trade
TRANSCRIPT
Why Countries Trade
To understand why countries trade
Why Trade?
There are two theories on why countries trade, they both agree that countries should produce those things that they are most efficient at making
Absolute Advantage
Theory that we should produce what is efficient, and trade the surplus for things that we aren’t efficient at making
Absolute Advantage
Theory that we should produce what is efficient, and trade the surplus for things that we aren’t efficient at making
Ex. – we export machinery to Central America, they export bananas to us
Comparative Advantage
Theory that we should produce those things at which we are relatively more efficient at making
Comparative Advantage
Theory that we should produce those things at which we are relatively more efficient at making
Ex. – US makes both watches and airplanes more efficiently than Switzerland
Comparative Advantage
Theory that we should produce those things at which we are relatively more efficient at making
Ex. – US makes both watches and airplanes more efficiently than Switzerland• However, we are 3x more efficient in
airplanes, 2x in watches
Comparative Advantage
Theory that we should produce those things at which we are relatively more efficient at making
Ex. – US makes both watches and airplanes more efficiently than Switzerland• However, we are 3x more efficient in
airplanes, 2x in watches• Therefore, we should specialize in airplanes
Barriers to Trade
Tariffs – taxes on imports
Barriers to Trade
Tariffs – taxes on imports3 types of tariffs:
Barriers to Trade
Tariffs – taxes on imports3 types of tariffs:
Revenue – intended to raise money
Barriers to Trade
Tariffs – taxes on imports3 types of tariffs:
Revenue – intended to raise moneyProtective – to protect US made goods
Barriers to Trade
Tariffs – taxes on imports3 types of tariffs:
Revenue – intended to raise moneyProtective – to protect US made goodsRestrictive – to reduce/eliminate flow on a product to the country
Barriers to Trade
Quotas – limit on the amount of goods let into a country (made illegal by GATT General Agreement of Tariffs and Trade)
Barriers to Trade
Quotas – limit on the amount of goods let into a country (made illegal by GATT General Agreement of Tariffs and Trade)VER (Voluntary Export Restraints) countries volunteer to set their own quota on exports to help another country out
Barriers to Trade
Regulations and Certification – imports must meet these
The Costs and Benefits of Trade Barriers
Why restrict trade?
The Costs and Benefits of Trade Barriers
Why restrict trade?Infant Industry – needs to protect young growing industry from well-established industry
The Costs and Benefits of Trade Barriers
Why restrict trade?Infant Industry – needs to protect young growing industry from well-established industryNational Security – produce necessary military products itself
The Costs and Benefits of Trade Barriers
Why restrict trade?Infant Industry – needs to protect young growing industry from well-established industryNational Security – produce necessary military products itselfProtection of domestic jobs – foreigners work for less
The Costs and Benefits of Trade BarriersWhy restrict trade?
Infant Industry – needs to protect young growing industry from well-established industryNational Security – produce necessary military products itselfProtection of domestic jobs – foreigners work for lessMaintaining economic stability – can be greatly disrupted by other countries’ problems
Balance of Trade
Since 1980, US imports more than it exports (negative balance of trade)
Balance of Trade
Since 1980, US imports more than it exports (negative balance of trade)
Can be bad for employment, taxes, profits, economic growth
Balance of Trade
Since 1980, US imports more than it exports (negative balance of trade)
Can be bad for employment, taxes, profits, economic growthGood for fighting inflation, providing low cost goods
Politics
The US has backed away from Free Trade, and pushed for Fair Trade
Politics
The US has backed away from Free Trade, and pushed for Fair Trade
Opposed to the policy of dumping (selling of products for less than that country can produce them for)
Politics
The US has backed away from Free Trade, and pushed for Fair Trade
Opposed to the policy of dumping (selling of products for less than that country can produce them for)
The US has published a list of Unfair Trade Countries, and threats of retaliation from the US have improved conditions