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    Unit 4 Trade Barriers Powerpoint New2 Unit 4 Trade Barriers Powerpoint New2 Presentation Transcript

    • INTERNATIONAL TRADE
    • International Trade - Definition
      • International trade involves the exchange of goods or services between nations.
      • This is described in terms of
        • Exports : the goods and services sold in foreign markets.
        • Imports : the goods or services bought from foreign producers.
    • Free Trade vs. Trade Barriers
      • Nations can trade freely with each other or there are trade barriers.
        • Free Trade : Nothing hinders or gets in the way from two nations trading with each other.
        • Trade Barriers : Trade is difficult because things get in the way.
      • There are costs and benefits related to free trade as well as trade barriers.
    • Free Trade - Benefits
      • When nations specialize and trade, total world output or sales is increased.
      • Companies can produce for foreign markets as well as domestic markets (markets in the home country).
      • This means there is potential for making more money as there are more markets to sell goods or services in.
      • More variety of goods are available from a world market than just a domestic market.
      • Prices of goods are decreased through increased competition.
    • Free Trade - Costs
      • The domestic (home) country can lose money because the foreign goods allowed into the market increase competition and make it less likely people will buy domestic products.
        • Example: In the U.S., people might want to buy a foreign automobile like a Honda or Toyota instead of an American made car.
      • Increased competition means lower prices.
      • Less money will go into the domestic market place and this can cause factories to be closed and jobs to be eliminated.
    • Trade Barriers – Three Types
      • Barriers to trade are things that hinder or get in the way of trading.
      • They can be cultural, physical , or economic.
        • Cultural barriers : language, currency, belief system.
        • Physical barriers : mountains, rivers, etc.
          • Example: The Alps Mountains in Europe
        • Economic barriers : government rules that restrict, block or discourage international trade between countries.
    • Trade Barriers - Economic
      • The most common trade restrictions are:
        • tariffs , which are taxes on imports.
        • quotas , which are limits on the quantity that can be imported.
        • embargos, which are a complete trade block usually for political purposes.
    • Tariffs
      • A tariff is a tax put on goods imported from abroad and sometimes referred to as custom duties.
      • It is the most used and most familiar type of trade restriction.
      • The effect of a tariff is to raise the price of the imported product.
      • It makes imported goods more expensive so that people are more likely to purchase domestic products.
      • The money received from the tariff is collected by the domestic government.
    • Quotas
      • A quota is a limit on the amount of goods that can be imported.
      • Putting a quota on a good creates a shortage, which causes the price of the good to rise and makes the imported goods less attractive for buyers. This encourages people to buy domestic products.
      • A quota on shoes, for example, might limit foreign-made shoes to 10,000,000 pairs a year. If Americans buy 200,000,000 pairs of shoes each year, this would leave most of the market to American producers.
    • Embargoes
      • Embargoes are a government order which completely prohibits trade with another country.
      • If necessary, the military actually sets up a blockade to prevent movement of merchant ships into and out of shipping ports.
    • Embargoes (con’t)
      • The embargo is the harshest type of trade barrier and is usually enacted for political purposes to hurt a country economically and thus undermine the political leaders in charge.
      • Such was the case with the Cuban embargo which has been in place since the 1960s.
    • Trade Barriers - Benefits
      • Most barriers to trade are designed to prevent imports from entering a country.
      • Trade barriers provide many benefits:
        • protect homeland industries from competition
        • protect jobs
        • help provide extra income for the government.
        • Increases the number of goods people can choose from.
        • Decreases the costs of these goods through increased comp
    • Trade Barriers - Costs
      • Tariffs increase the price of imported goods.
      • Less competition from world markets means there is an increase in the price.
      • The tax on imported goods is passed along to the consumer so the price of imported goods is higher.