International trade

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International trade

  1. 1. Bellringer ½ sheet 1. Where was your shirt made? (Have your neighbor check) 2. Who do you think is the most productive student in class? 3. Would you need to know how to read to make a t shirt? 4. Would you need to know how to read to design a cellphone app?
  2. 2. Comparative Advantage Activity
  3. 3. Absolute Advantage Who is the most productive • Total hours to finish jobs
  4. 4. Comparative Advantage Whoever can do the job with the lowest opportunity cost
  5. 5. Another way of looking at Comparative Advantage • Should Jason Terry clean his own house?
  6. 6. Another way of looking at Comparative Advantage • Should Lebron James clean his house?
  7. 7. Specialization of labor • Firms & countries figure out more efficient methods of production • Productivity? • Effect on concept of trade?
  8. 8. Honduras • 100 tons of sugar/year OR • 100 tons of bananas
  9. 9. Cuba • 600 tons of sugar/year OR • 200 tons of bananas
  10. 10. Cuba & Honduras • Scarcity of farm land • Graph PPFs • Who is more productive? • Who has the comparative advantage of trade? • Why is this better? Honduras: Cuba: 100 tons of sugar/year OR 100 tons of bananas 600 tons of sugar/year OR 200 tons of bananas
  11. 11. What should happen here? What should happen here?
  12. 12. Who has comparative advantage: T shirts, financial, medical services, entertainment, shoes • Land, labor and capital in Honduras • GDP per capita: $2,200 / Population: 8 million • Literacy rate: 85%, 2 universities • Land, labor and capital in USA • GDP per capita: $48,000 / Population: 300 million • Literacy rate: 90%, 800+ universities
  13. 13. Trade • Free trade = absence of restrictions of goods/services • List 3 winners & 3 losers if all countries had free trade • Winners: • Losers:
  14. 14. Benefits of FREE TRADE • Lower prices for consumers • More competition leading to better products • Job opportunities for producers • Job opportunities in buyer countries • Opportunity costs?
  15. 15. Source: World Bank
  16. 16. Types barriers to FREE TRADE • Tariffs • Tax on imports • Result: higher price for consumers, job saving – Opportunity cost • • • • • Quotas Limit on imports Result: high prices, less choice Examples: Japanese full sized trucks Lexus, Infinity, etc
  17. 17. Other crazy import tariffs • Japan: 700% tax on rice • European Union: orange juice (31%), peanut butter (132%), and tobacco products (350%) • South Korea: 100% automobiles • Canada: 28% leather shoes • United States: 249 % solar panels, Waterproof shoes with a metal toe cap 37.5 % • Brazil: 60% tablet computers
  18. 18. Drawbacks of FREE TRADE • Structural unemployment • Lower union membership • Ethical problems
  19. 19. Let’s consider some systems • EU, WTO, Trading blocs, NAFTA
  20. 20. NAFTA • 1994-present • US, Canada, Mexico • Eliminated thousands of tariffs • Expanded to CAFTA in 2005
  21. 21. European Union • 1954- Present • Free movement of goods, services and people • Euro-zone • Contrast with US/Latin Am.
  22. 22. NAFTA is 20! 1. Does the author think NAFTA has been a success? Back up your answer with evidence. 2. Which country has gained most from the trade deal? 3. What are the three suggestions for NAFTA in the future? 4. Which do you think is the most important and explain why? 5. What 3 types of goods does Mexico have a comparative advantage in producing? 6. Based on the experience of NAFTA should free trade be expanded all the way to Argentina and Brazil?
  23. 23. Free Trade Assignment • Letter to John McCain • 2-3 paragraphs considering: Should the US expand its free trade zone to include all of the Western Hemisphere? Consider both sides, but choose the better one.
  24. 24. Trade Balance • • • • Value of exports > value of imports Trade Surplus Net Exporter Germany, China, Canada, Norway • • • • Value of imports > value of exports Trade Deficit Net importer USA, Mexico, Japan,
  25. 25. Balance of payments • Measure of trade between a country and the rest of the world • Current Account: • Trade, income, transfers • $$$ out, must come back • Capital Account • Financial Account • Investments • Foreign Reserves • Draw on board

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