Balance of T rade Balance of Payments c

Balance of T rade Balance of Payments c. Explain th e difference between ba trade and b lance of alance of pa yments.

Trade Barriers Winners and Losers 0 What were the trade barriers we talked about yesterday? 0 Who loses and who wins?

Winners Tariff Quota Subsidy Winners Domestic Consumer X – Price is kept low Domestic Producer X – imports more X – their product X – paid for expensive will be bought making the good Foreign consumer X – prices kept low in home country Foreign producer X – prices kept low in home country X – Supply increases, decreasing price

Losers Tariff Quota X – less goods, prices higher X - less goods, prices higher X – sell fewer in country that imposed tariff X – sell fewer in country that imposed quota Subsidy Losers Domestic Consumers Domestic producers Foreign consumers Foreign producers X –price decreases in world market

Measuring International Trade 0 Trade Surplus – exporting more than importing 0 Trade Deficit – importing more than exporting 0 How do we determine if we have trade surplus or deficit? 0 Current Account

Current Account Balance 0 Balance of Trade 0 Exports and Imports 0 Interest and Dividend Payments 0 On foreign held assets 0 Transfers 0 Foreign aid

But wait, there’s more. 0 Capital Account- shows the amount of capital that flowed in and out of the United States 0 Includes: 0 Investment through purchases of stocks, bonds 0 Purchase of assets (foreign money)

How do they relate and affect us? 0 A deficit is sometimes seen as a lack of competitiveness or an unfair trading environment. 0 Deficits mean we are borrowing from abroad to acquire goods and services. 0 Is this a terrible thing? 0 It depends what we spend the money on. 0 If we use that money borrowed to invest in long term payoffs, the deficit makes sense.

What do we spend the most on? 0 Human Resources 30% 0 0 Social Security Health Education Dept. of Labor 0 Current and Past Military 54% 0 War on Terror 0 Homeland Security 0 Personnel (active and retired) 0 NASA

Trading Organizatio ns (Blocks)

How are trading blocks the same? 0 Allow trade across borders without limitations 0 No protectionism – i. e. trade barriers 0 Reflects natural prices that result from supply and demand