Economics, Free Trade

1. Free Trade

2. Free Trade: International trade left to
its natural course without tariffs,
quotas, or other restrictions.

3. Three Rules to Free Trade
1. Trade must be voluntary.
2. All trading parties must benefit.
3. Trade moves products from people who
value them less, to people who value
them more.

4. Why Do We Trade?
There are 6 reasons…
1. Natural Resources – Materials found in nature
that is used to make a good or service.
2. Human Capital – Knowledge of making the
good/ providing the service.
3. Physical Capital – Objects used to produce the
good or service.

5. Why Do We Trade?
There are 6 reasons…
4. Economic Activity Patterns – Producing,
exchanging, consuming, saving, &
investing.
5. Unequal Distribution of Resources –
Knowledge of making the good/ providing
the service.
6. Need for Trade – Objects used to produce the
good or service.

7. Clear your desks please…..some things to
consider…..
1. Trade moves goods from people who
value them less to people who value
them more.
2. Trade allows us to specialize in the
things we do best.
3. Trade lowers per-unit costs by using
mass production methods and lower
labor costs.

8. Trading Simulation Rules
Goals/Rules
1. Improve your economic situation
creating more wealth for your country.
2. Trade must be voluntary.
3. You can trade all or any portion of
your bag.

9. Let the Trading Begin…
After each round, you will rate your
overall
satisfaction level with what you have in
your
bag.
Round 1: you will be trading with your
row only.

10. Round # 1
My satisfaction level after round # 1 is
___________.
1. The U.S. has a trade deficit resulting
in a negative trade balance (Japan
and China).
2. The U.S. is the largest importer.
China is the largest exporter in the
world.

11. Trading Partners
European Union - EU is largest single
trading partner with the United States.
25 Member
Nations -

12. Round # 2
My satisfaction level after round # 2 is
___________.
Protectionism: Use of trade barriers to protect
U.S. goods from foreign competition.
Trade Barriers: (restrictions) limit free trade.

13. Round # 3
My satisfaction level after round # 3 is
___________.
1995 World Trade Organization (WTO) was
established to negotiate new trade
agreements, resolve trade disputes, and
enforce trading rules.

14. What’s Wrong With Free Trade?
What’s Great About Free Trade?

15. How Free Trade Helps
Less Developed
Countries
How Free Trade Hurts
Less Developed
Countries
How Free Trade Helps
the United States
How Free Trade Hurts
the United States

16. How Free Trade Helps
Less Developed
Countries
How Free Trade Hurts
Less Developed
Countries
• Provides jobs for unskilled
workers
• Raises the standard of living
• Increased social equality
• Increases the flow of goods to
their country
• Specialization = no subsistence
farming
• Efficient use of their scarce
resources
• Higher rates of income
inequality
• Poor working conditions
• Higher rates of corruption
• Increased environmental
degradation

17. How Free Trade Helps
the United States
How Free Trade Hurts
the United States
• Provides cheap goods which
increase one’s income
• Increases the flow of goods to
and from the country
• Efficient use of their scarce
resources (Specialization)
• Creates competition
• Creates dependency on other
nations
• Ships jobs abroad
• Provokes the use of
protectionism which can lead
to trade wars
• Increased environmental
degradation

18. Quick-Write
Does free trade benefit the poor?