Globalization and International Trade

Globalization:

●Globalization- the interconnectedness of the
world.

●Why do countries trade with each other?
○People have always traded, but over
time technology and advancements have
allowed for that trade to expand to other
parts of the world.

Multiple Choice

One of the key things that has allowed trading to expand globally is __________.

• farming

• technology

• war

• arrows on a map

The Economic Shift:

●People were once nomadic hunters and gatherers

●The domestication of plants and animals (farming)
○Allows people to settle & stay in one place - Civilization

●Domino Effect….
○Domestication of Plants & Animals leads to Food Surplus
■Food Surplus leads to Population Boom
●Food Surplus & Population Boom leads to job Specialization & Complex Institutions (Religion, Codified Laws, Government, etc.)
○Job Specialization leads to Trading
■Trading - Record Keeping and Writing
●Trading & Record Keeping and Writing - Hierarchies

●The hierarchies created by these trading systems have played a major role in
the way the world’s countries still operate and trade today.

Multiple Choice

One of the key things that has allowed people to settle in one place is __________.

• farming

• technology

• war

• arrows on a map

Multiple Choice

The chain of events that led people from being hunters and gatherers to having settled in civilizations is known as a _______ effect.

• domino

• farm

• nomad

• road

Factors the Influence International Trade

●Demand for a country’s goods and services

●Political Stability

●Interest Rates

●Exchange Rates - How much our currency is worth when you trade it for
another country’s currency

●Export- to transport goods to another place for
trade.

●Import- to bring in a good or service from another
area for trade.

●Interdependence- people relying on each other for
goods, services, and ideas.

●Trade- buying, selling, or exchanging of goods and
services.

Multiple Choice

This is what one place sends out to another place when trading

• export

• import

• interdependence

• trade

Multiple Choice

This is what one place brings in from another place when trading

• export

• import

• interdependence

• trade

Multiple Choice

People rely on each other for goods and services. This is

• export

• import

• interdependence

• trade

Multiple Choice

The buying, selling, and exchanging of goods and services

• export

• import

• interdependence

• trade

Multiple Choice

The difference in value when one currency is traded for another.

• interest rate

• exchange rate

• demand rate

• trade rate

Why do Countries Trade?

Countries trade because…

●

they cannot produce a product domestically.

●

to have a wider variety of goods available to consumers.

●

even if a they can produce a product, if another country specializes it
that item, buying it from them may increase quality and decrease the
price.

●

they wish to conserve limited resources.

●

other countries have an advantage (absolute and comparative- we will
talk about this later…)

Strike a Balance

When countries trade, it is important to keep a balance of goods exported
and imported.
●

balance of trade- refers to the value of all goods and services exported
minus the value of all goods and services imported.

●

trade surplus- If a country’s exports exceed its imports

●

trade deficit- If the country imports more than it exports

Balance of Payments

●

how countries keep track of all monetary transactions in the
international market.

●

the difference between the money a country pays out for imports and
the money a country gets paid from other countries for exports

Multiple Choice

A country's exports exceed that country's imports

• balance of trade

• trade surplus

• trade deficit

• limited resources

Multiple Choice

A country's imports exceed that country's exports

• balance of trade

• trade surplus

• trade deficit

• limited resources

Multiple Choice

The calculation of the value of all goods and services exported minus the value of all goods and services imported.

• balance of trade

• trade surplus

• trade deficit

• limited resources

How Do Nations Achieve A Trade Advantage?

●

Technology
○

Manufactured goods are produced in countries with advanced
technology (machines & factories)

●

Natural Resources
○

The US has a lot of natural resources (metals, coal, oil, water,
good farmland, etc) & exports a lot of natural resources.

○

Nations such as Japan and China have more limited natural
resources and must import a lot.

●

Government Regulation
○

Governments use trade barriers to protect domestic jobs and

○

industries from foreign competition.
■

Trade Restrictions, Tariffs, Quotas

How Do Nations Achieve A Trade Advantage?

●

Technology
○

Manufactured goods are produced in countries with advanced
technology (machines & factories)

●

Natural Resources
○

The US has a lot of natural resources (metals, coal, oil, water,
good farmland, etc) & exports a lot of natural resources.

○

Nations such as Japan and China have more limited natural
resources and must import a lot.

●

Government Regulation
○

Governments use trade barriers to protect domestic jobs and

○

industries from foreign competition.
■

Trade Restrictions, Tariffs, Quotas

Multiple Select

Three major factors in a nation achieving a trade advantage are

• technology

• natural resources

• if the country decides it wants an advantage

• government regulations

Government Regulation

Trade restrictions- any sort of penalty a country puts on the importation of
products from another country.

●Trade Sanctions (imposing barriers to trade)
○Embargo
■Most extreme (usually political)

■Prohibits trade with other nations.

■Prohibits access to certain products from other nations.

○Tariff
■Taxes on imports from other countries

■to increase revenue in a nation and to encourage consumption of
domestic products.

○Quotas
■a law that limits the amount of a particular imported good.

Multiple Choice

The most extreme form of government regulation is

• quota

• embargo

• tariff

• any sanction is extreme

Multiple Choice

Regulation through taxing of imports

• quota

• embargo

• tariff

• there is no such thing as a tax on imports

Multiple Choice

Setting a limit on how much of a product can be imported

• quota

• embargo

• tariff

• there is no such thing as a limit on imports

Government Regulation

Tariffs

●Approximately 94 percent of U.S.
merchandise imports are industrial
(non-agricultural) goods.

●The United States currently has an
average import tariff rate of 2% on
industrial goods.

●One-half of all industrial goods
imports enter the United States
duty free (no tariffs)

Quotas

●limit of the amount of imported
goods that are allowed

●The US currently has ZERO absolute trade quotas in the US.

●The US DOES have Tariff free
quotas- no taxes on goods to a
certain amount.

●EX:
○Limits on milk, sugar, and beef
(Argentina has 20k ton limit on
beef before it’s taxed)

○Limits on European steel 

Multiple Choice

When there is no tax on an import

• quota

• duty free

• tariff

• balance

Multiple Choice

The US has multiple absolute trade quotas

• TRUE

• FALSE

Multiple Choice

The US has tariff free trade quotas

• TRUE

• FALSE

World Trade Organization (WTO)

●Designed to eliminate protectionism

○Placing trade barriers like high
tariffs on imports and limiting the
number of foreign goods to protect
local businesses - usually hurts more
than it helps).

●Effective in getting countries to agree to
specific rules and helps settle disputes,
but has also been accused of favoring rich
countries and not doing enough to protect
the environment or people.

Multiple Choice

The main purpose of the WTO is

• eliminating protectionism

• increasing protectionism

Absolute Advantage

●If 2 countries or businesses have
the same amount of resources, one
can produce more than the other
using fewer resources.

●the ability of a country or business
to produce a particular good better
and more effectively.

●the efficiency of producing a single
product.

Comparative Advantage

●one country or business can
produce a good or service at a
lower opportunity cost than
another.

●When multiple things could be
produced, compare which option is
the best

●Comparing your options, which one
has a lower opportunity cost?

Even if a country has an absolute advantage in several goods

and services, it will usually specialize and produce goods and

services in which it has a comparative advantage.

Multiple Choice

If a country has an absolute advantage in several goods

and services, it will always produce those things.

• TRUE

• FALSE

Multiple Choice

The ability of a country or business to produce a particular good better and more effectively.

• absolute advantage

• comparative advantage

Multiple Choice

When multiple things could be produced, compare which option is the best

• absolute advantage

• comparative advantage

Multiple Choice

Takes into consideration only the efficiency of one single product.

• absolute advantage

• comparative advantage

Multiple Choice

Takes into consideration the opportunity costs.

• absolute advantage

• comparative advantage

Absolute Advantage

● Oil Production

○ Nations in the Middle East have

easier access to oil, therefore they
have an absolute advantage.

● Coffee production

○ Central and South American

countries have ideal climate and
soil for growing coffee beans.

● Phones

○ Apple makes 1000 phones per day

with 100 employees and Samsung
makes 900 phones per day with
100 employees.

Comparative Advantage

● Canada and Mexico

○ Canada can grow avocados or make

maple syrup. It is cheaper and
easier to make maple syrup. Mexico
has the ideal climate for avocados.
Canada is better off putting
resources into maple syrup and
importing avocados.

● A technology company

○ The company can produce 10

smartphones or 10 computers using
the same resources, but computers
have a higher profit. The company
would choose to make computers.

Multiple Choice

Canada can both produce avocados, but they choose to produce maple syrup because

• Canada has an absolute advantage in avocado

• Canada has a comparative advantage in avocado

• Canada has an absolute advantage in maple syrup

• Canada has a comparative advantage in maple syrup

​The video is in Canvas slides if you need additional information.

Comparative Advantage

Liz and Joe each own a vegan restaurant .

Liz can spend all her time producing either
40 salads or 40 smoothies an hour. She can
split her time equally and produce 20 salads
and 20 smoothies an hour.
For each additional smoothie Liz produces,
she must decrease her production of salads
by one., and for each additional salad she
Liz produces, she must decrease her
production of smoothies by one.
Liz’s OC of producing 1 smoothie is 1 salad.
Liz’s OC for producing 1 salad is 1 smoothie.

Joe can spend all his time producing either
30 salads an hour or 6 smoothies per hour.
Therefore, he can make a salad in 2 minutes
or a smoothie in 10 minutes. For each
additional smoothie Joe produces, he must
decrease his production of salads by 5. And
for each additional salad Joe produces, he
must decrease his production of smoothies
by 1/5 of a smoothie.
Joe’s OC of producing 1 smoothie is 5 salads
Joe’s OC producing 1 salad is 1/5 smoothie

What should Liz produce? What about Joe?

Multiple Choice

Based on the information provided, what should Liz produce?

• smoothies

• salads

Multiple Choice

Based on the information provided, what should Joe produce?

• smoothies

• salads

Specialization and Comparative Advantage

Specialization occurs when
persons, businesses, or nations
use their available resources to
focus on producing one or a few
items they are best suited.

Interdependence happens
when countries specialize in
certain goods. People depend on
each other for the different
goods and services.

Comparative Advantage and Trade
●When specialization in a good occurs
(assuming there is a comparative
advantage), total output will grow.

●As long as the opportunity cost of
producing the goods differs across the two
individuals, both can gain from
specialization and trade.

Ex: South American countries specialize in
coffee production. The US depends on South
American countries to keep up with the coffee
demand . Those same countries rely on the US
for computer equipment..

Multiple Choice

Middle Eastern countries producing oil is an example of

• specialization

• quotas

• tariffs

• interdependence

Multiple Choice

Two countries that rely on each other for traded items have a(n)

• specialization

• advantage

• problem

• interdependence

If a country can produce everything it needs, why would it trade?

Even if a country like the United

States has an absolute advantage

with Panama in both milk and
cookies, it might be cheaper to

produce cookies in Panama which

gives them a comparative

advantage. In this case, it is more
efficient for the US to specialize in

producing milk, and Panama to
specialize in producing cookies.

When we specialize and trade, products become cheaper for consumers.

Multiple Choice

The goal of trading with comparative advantage in mind is to

• get quality products for a lower price

• to tax as much as possible

• to make sure we don't start a war

• to support local business