Why Nations Trade• In a recent year, about 8 percent of all the

goods produced in the United States were exported, or sold to other countries.

• A slightly larger amount of goods were imported, or purchased from abroad.

• Trade is one way that nations solve the problem of scarcity.

• Nations trade for some goods and services because they could not have them otherwise.

Barriers to International Trade• Foreign countries with a comparative

advantage can sell their product more cheaply than can companies making the product in their own country.

• Consumers will likely buy the cheaper foreign product.

• Workers who make the product in their own country may lose their jobs as sales drop.

• When this happens, the government may impose trade barriers to protect the affected workers and industries.

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Barriers to International Trade (cont.)

• A tariff is a tax on an imported good.

• The goal is to make the price of imported goods higher than the price of the same good produced domestically.

• As a result, consumers would be more likely to buy the domestic product.

• When people want the product so badly that higher prices have little effect, countries may set quotas, or limits on the amount of foreign goods imported.

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• Trade barriers force consumers to pay higher prices for the sake of protecting inefficient industries.

• In general, trade barriers cost more than the benefits gained.

• For this reason, most countries now aim to achieve free trade.

• They try to convince countries not to pass laws that block or limit trade.

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Barriers to International Trade (cont.)

• A recent trend is for countries to join with a few key trading partners to form free trade zones.

• The European Union (EU) is an organization of 15 European countries, which forms a huge market.

• Goods flow freely among these nations because the EU has no trade barriers.

• Most member countries also adopted a common currency, the euro.

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Barriers to International Trade (cont.)

• In the 1990s, the United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA).

• This deal eliminated all trade barriers among these countries.

• Opponents of NAFTA contended that American workers would lose their jobs because U.S. plants would move to Mexico.

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Barriers to International Trade (cont.)

• The World Trade Organization (WTO) oversees trade among nations.

• It organizes negotiations about trade rules and helps countries trying to develop their economies.

• Critics say that WTO policies favor corporations at the expense of workers, the environment, and poor countries.

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Barriers to International Trade (cont.)

Exchange Rates• Most nations use a flexible exchange rate

system, which allows supply and demand to set the price of various currencies.

• If a nation’s currency depreciates, or becomes weak, the nation will likely export more goods because its products will become cheaper for other nations to buy.

• A country has a trade deficit whenever the value of the products it imports exceeds the value of the products it exports.

• It has a trade surplus whenever the value of its exports exceeds the value of its imports.