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Unit 4 Trade Barriers Powerpoint New2


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Unit 4 Trade Barriers Powerpoint New2

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