ch. 16: international trade economics 12. international trade canadians have become accustomed to...
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Ch. 16: International
TradeECONOMICS 12
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International Trade Canadians have become accustomed to consuming goods & services from all parts of the world
Canada is part of a global trading system
sells its own goods & services to other countries (exports)
buys goods & services from other countries (imports)
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Why Do Nations Trade?Absolute advantage – the ability of one person, region or country to produce a good or service at a lower cost than a competitor’s
Comparative advantage - the ability of one person, region or country to provide a good or service relatively more cheaply (i.e. lower opportunity cost) than a competitor
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Barriers To International Trade
Protective tariffs – taxes imposed on imported goods in order to raise the price and lower the quantity sold
Embargo – ban against the import or export of a good (e.g. cocaine)
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Barriers To International Trade
Quotas – a restriction on the amount of foreign foods that may be imported
Red tape – government can use bureaucracy to delay or even prevent the importing of foreign goods
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Arguments Against International Trade
Infant industry argument
Vital industries argument
Cheap foreign labour argument
Employment argument
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International Trade And The Circular Flow
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International Trade And The Circular Flow
domestic & international trade is similar both have specialization but currency exchange needed for international trade
Canada’s trade partners – biggest trading partner is USA with 80.3% of Canadian exports going there and 73% of imports coming from the USA
EU and Japan 2nd and 3rd most significant
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International Trade And The Circular Flow
Visible and invisible trade – merchandise trade is visible, tangible goods whereas tourism, services, investment income and money transfers are not visible or tangible
Canadian merchandise trade trade surplus
Capital movements – purchase and sales of foreign and domestic bonds and stocks
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International Trade And The Circular Flow
Balance of payments – is the summary of all the visible, invisible and capital transactions over a year
Balance of trade – difference between visible exports and imports (Bal Of Trade = Vis Exports – Vis Imports)
Balance of trade on current account - difference between visible and invisible exports and imports (Bal of Trade Cur Acct = Vis/Inv Exports – Vis/Inv Imports)
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Exchange Rates Exchange rate is the price of one currency expressed in terms of another currency
Canadian = Foreign divide (e.g. $10 Cdn = ? £ 1 £ = $2 Cdn $10 ÷ $2 = 5 £ UK)
Foreign = Canadian multiple (e.g. 200 Jap = ? $ 1 ¥ = $0.01 Cdn 200¥ x $0.01 = $2 Cdn)
Flexible exchange rates – supply and demand for a currency determine its price relative to other currencies
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Exchange Rates Fixed exchange rates – governments intervene in the foreign currency market to maintain the price of their currency relative to some other currency (e.g. US $)
Canada has had both types and now prefers a mixture of the two called a managed or dirty float
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Freer TradeSince WW 2 ended in 1945 countries realize increased international trade increases prosperity and helps prevent war
General Agreement on Trade and Tariffs (GATT) World Trade Organization (WTO)
European Union (EU) – most Western European countries
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Freer Trade
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Freer TradeAuto Pact of 1965 – great benefits to Canada through economies of scale lowering costs and increasing workers wages
Canada – U.S. Free Trade Agreement, 1987
North American Free Trade Agreement (NAFTA), January 1, 1994 – 363 million people, $6.25 trillion GDP (Canada / USA / Mexico)
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NAFTA1. Canada – can sell telecommunications and
banking services, will buy manufactured goods
2. Mexico – great opportunity for economic prosperity, but fear the efficient USA producers and USA culture
3. United States – hope Mexico stabilizes and stops flow of illegal immigrants into America, but fear businesses will move to lax Mexico where costs are lower loss of USA jobs
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Summary