UNIT 5 THE GLOBAL ECONOMY INTERNATIONAL TRADE TRADE

UNIT #5 – THE GLOBAL ECONOMY

INTERNATIONAL TRADE

TRADE PATTERNS Merchandise Trade o Goods that are grown, extracted, or manufactured in one country and sold to another o Visible trade Non-merchandise Trade o Exchange of services, tourism, investment incomes, and other transfer of funds o Non-visible trade

TRADE PATTERNS Balance of merchandise trade o The difference between the value of merchandise exports and imports o Favorable balance – when the value of exports is greater than the value of imports

CLASSIC TRADE THEORIES Mercantilism Absolute Advantage Comparative Advantage

MERCANTILISM Developed in the 16 th Century The trade relied on paying nations the difference between exports and imports in the form of gold and silver instead of currency Protectionism – impose restrictions on imports

ABSOLUTE ADVANTAGE 1776 by Adam Smith This theory focused on the ability of a country to produce a good/service more efficiently than another nation

COMPARATIVE ADVANTAGE 1817 by David Ricardo This theory depicts when a country cannot produce a product more efficiently than the other country, but it can produce that product better and more efficiently than it does other goods

COMPARATIVE ADVANTAGE Relative Factor Endowment o What a nation is naturally given to work with (land, labor, capital) Relative Factor Intensity o How a resource endowment is put to use (outputs)

MODERN TRADE THEORIES Country Similarity Theory Global Strategic Rivalry Theory

COUNTRY SIMILARITY THEORY 1961 by Steffan Linder Proposes that consumers in countries that are in the same stage of development would have similar preferences and per capita incomes

GLOBAL STRATEGIC RIVALRY THEORY 1980 s based on the work of economists Paul Krugman and Kelvin Lancaster Their theory focused on multinational corporations and their efforts to gain a competitive advantage against other global firms in their industry

GLOBAL STRATEGIC RIVALRY THEORY Barriers to entry: o Research and development o Ownership of intellectual property rights o Economies of scale o Unique business processes o Control of resources or favorable access to raw materials

WHAT GLOBAL TRADE DEALS ARE REALLY ABOUT https: //www. youtube. com/watch? v=- v 3 uq. D 1 h. WGE

LET’S TALK 1) When did the modern era of free trade start? 2) What were some of the world events leading up to free trade? 3) What is the term Haley uses when describing when nations were dependent on each other for their supply chains and for this reason could not go to war with each other? 4) What is the GATT?

5) What percent did the global GDP increase by at the introduction of GATT? 6) What are non-tariff barriers? 7) What is the WTO? 8) What is the main idea and goal of all nations which is switching from world peace to global _____?

CULMINATING TASK – THE DEBATE

TOMORROW Quiz! (using www. socrative. com) Trade policies and agreements

REFERENCES 1) Photo 1 in slide 1: https: //www. google. ca/search? q=trade&source=lnms&tbm=isch&sa=X&ved=0 ah. UKEwjy 4 rva 3 o. Tf. Ah. XNme. AKHRNh CC 8 Q_AUIDyg. C&biw=1254&bih=716#imgrc=qx 4 Qk. Tqb. NHi 0 b. M 2) Photo 2 in slide 1: https: //www. google. ca/search? biw=1254&bih=667&tbm=isch&sa=1&ei=R 7 IFXPyy. M 6 OHggebg. JEQ&q=trade+meme &oq=trade+meme&gs_l=img. 3. . 0 l 2 j 0 i 5 i 30 l 8. 16691. 17715. . 17932. . . 0. 0. 75. 355. 5. . . 1. . gwswizimg. . . . 0 i 67 j 0 i 10. h. Gx 0 MFOXv 20#imgdii=VMtu_d. Kpk 196 w. M: &imgrc=z. J 2 dj. Eer. KGs_0 M 3) https: //saylordotorg. github. io/text_international-business/s 06 -01 -what-is-international-trade-th. html 4) https: //www. youtube. com/watch? v=-v 3 uq. D 1 h. WGE