Notebook 27 Economics 17 2 Barriers to International

Notebook # 27 - Economics 17 -2 Barriers to International Trade

Barriers to International Trade ESSENTIAL QUESTIONS: • What are the effects of trade barriers such as tariffs, quotas, embargoes, etc. ? • How is foreign exchange used in trade? • How do trade deficits correct themselves under flexible exchange rates?

Barriers to International Trade GPS STANDARDS: SSEIN 2 - Explain why countries sometimes establish trade barriers and sometimes advocate free trade. a. ) define trade barriers as tariffs, quotas, embargoes, standards, and subsidies. b. ) identify the costs and benefits of trade barriers over time c. ) list specific examples of trade barriers d. ) list specific examples of trading blocks such as EU, NAFTA, and ASEAN e. ) evaluate arguments for and against free trade

l Barriers to International Trade • Although international trade can bring many benefits, some people object to it because it can displace selected industries and groups of workers in the United States. • The European ban on American hormonetreated beef is just one example of attempts to restrict trade.

Restricting International Trade • Two major ways of restricting trade are through a tariff, or tax placed on imports, and a quota, a limit on the quantities of a product that can be imported. • A protective tariff is one that is high enough to protect less efficient domestic industries. • A revenue tariff is one high enough to generate revenue.

Restricting International Trade • Most quotas are used to reduce the supply of a product and keep prices high for domestic producers. • Other barriers to trade include overly rigorous health inspections and difficult licensing requirements.

Arguments for Protection • Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position. • According to one argument, a country could become so specialized that it would end up being dependent enough on other countries that it would affect national defense. • The infant-industries argument is the belief that new industries should be protected from foreign competition.

Arguments for Protection • Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position. • Some argue that tariffs and quotas protect domestic jobs form cheap foreign labor. • The argument for keeping the money at home claims that limiting imports will keep American money in the United States.

Arguments for Protection • The balance of payments argument suggests that protection would keep down the difference between the money a country pays to and what it receives from other nations.

The Free Trade Movement • Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position. • Trade barriers work only if other countries do not retaliate, causing all countries to suffer. • Restrictive legislation in the past nearly halted international trade.

The Free Trade Movement • Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position. • Various trade agreements have allowed countries to reduce tariffs in cooperation with other nations. • The World Trade Organization (WTO) and the North American Free Trade Agreement (NAFTA) are examples of international agencies for promoting freer trade.

The Free Trade Movement • Protectionists are people who favor trade barriers that protect domestic industries and offer various arguments to defend their position.

NAFTA- The North American Free Trade Agreement

Economics 17 -3 Financing & Trade Deficits

Financing and Trade Deficits • Trade between nations is similar to exchange between individuals. • The major difference is that each country has its own monetary system, which makes the exchange more complicated. • The value of some currencies, like the Hong Kong dollar, is tied to the value of the U. S. dollar in the hope of simplifying international trade.

Foreign Exchange • Foreign exchange is the buying and selling of the currencies of different nations. • The foreign exchange rate is the price of one country’s currency in terms of another country’s currency.

Foreign Exchange http: //www. x e. com/ucc/

Foreign Exchange • Exchange rates are fixed or flexible. • Obviously, fixed rates do not change. • Flexible exchange rates, commonly used today, establish the value of each currency through the forces of supply and demand.

Trade Deficits and Surpluses • Whether a country has a trade deficit or surplus depends in part on the international value of its currency. • The trade-weighted value of the dollar is an index that shows the strength of the dollar against foreign currencies. • A weaker dollar buys fewer foreign goods.

Trade Deficits and Surpluses • When would it be most economical for Americans to travel abroad: when the dollar is weak or when it is strong? • When the dollar is strong. • Because a strong dollar allows American dollars to buy more of foreign goods and services because other currencies are weaker by comparison.