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Transcript

  • 1. TRADE BARRIERS
  • 2. 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.
  • 3. 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.
  • 4. 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.
  • 5. 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.
  • 6.
    • Barriers to trade are things that hinder or get in the way of trade.
    • They can be cultural, physical , or economic
      • Cultural barriers : language, currency, or beliefs.
      • Physical barriers : mountains, rivers, etc.
        • Example: The Alps Mountains in Europe
      • Economic barriers : government rules that hinder block or discourage free trade between countries.
    Trade Barriers – Three Types
  • 7. 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.
  • 8. 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.
  • 9. 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.
  • 10. 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.
  • 11. 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.
  • 12. 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 competition.
  • 13. 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.