International Trade

“Trade Creates Wealth” The magic of international markets

(Color = Country) so as trade barriers were eliminated wealth or st. of living increased collectivelySome inherited scarce & desirable resources--& thus started with a trade advantage. Was it permanent? Did it assure success? T~ C ~ WTraders are wealthier than non traders—both expect to gain! (China)Standard of living? traders v. non

(p. 443-445)What might be the result if Carl specializes in BH & Kate attempts to keep the Ab. Advantage in BH & T’s?Principle: Produce & specialize in your lowest opportunity cost by comparisonEX: Oil deep v. oil easily foundAccording to this--what should your major be in college?

US Trade Data

Benefits of ProtectionismSecurity, Predictability, Stability, Job security, Less stressed

Costs of ProtectionismLower Standard of Living, less quality goods, less variety of goods, behind the times, less competition means higher prices

No economist argues for protectionism!!! They DO argue over the safety net for FT.

World Trade Organization est. 1995

Global international organization dealing with the rules of trade between nations144 member countries (as of January 2002).

WTO oversees trade agreements

reductions in tariffs; specific industriesagricultural trade; trade in services; protection and enforcement of “intellectual property”unfair competition & environmental issues

Stronger US dollar implies 1.U.S. can buy foreign goods cheaper 2.Foreigners find U.S. goods more

expensive and demand falls Cost of purchasing foreign goods falls Does not help firms that produce for exports

Weaker U.S. dollar implies 1.Foreigners buy more U.S. goods 2.Foreign goods become more

expensive Demand for imports falls  Helps firms that rely on exports

US Dollar / Euro exchange rate