Subsidies. A transfer payment given by a government to their exporting companies. Trade Barriers

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Chastity Clarke
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2 Trade Barriers Trade Barrier A law passed or action taken by the government of a country with the intention of restricting the flow of goods and services between its country and another.

3 Subsidies A transfer payment given by a government to their exporting companies Benefits Costs Protects domestic industries without putting other trade barriers in place - protects jobs Makes US goods pricecompetitive overseas Requires higher taxes May limit entrepreneurship and innovation Allows for inefficient use of resources Trade Barriers

4 Tariff A tax placed on imported goods Benefits Provides revenue to the importing country Protects the domestic producers - makes their products more competitive Protects domestic jobs Costs Limits competition Higher prices for consumers May lower profits, raise unemployment, hurt the economy Allows inefficient use of resources Trade Barriers

5 Quota A limit on the quantity of a good imported into a country Benefits Protects the domestic producers - limits competition May increase domestic companies profits Protects domestic jobs Costs Limits competition Higher prices for consumers May lower profits, raise unemployment, & hurt the economy Allows inefficient use of resources Trade Barriers

6 Embargo A complete ban on trade with a particular country due to political disputes Benefits Provides a diplomatic tool without war Costs Denies consumers certain products or tourism Curtails US companies trade opportunities May allow foreign companies access to the embargoed market Trade Barriers

7 Standards Specific guidelines a good must meet before it can be imported Benefits Protects American consumers from possible health/safety dangers Protects US manufacturers from unfair competition from inferior goods Costs Raises the cost of imports Increases government enforcement costs May limit availability of imports Trade Barriers

8 Trade Barrier Examples 2002 U.S. Tariffs on Steel 2005 Quotas on China s Textiles U.S. Embargo against Cuba USDA Labeling Standards U.S. Agricultural Subsidies

9 Trading Blocs NAFTA - North American Free Trade Agreement It was established to promote barrier free trade between Canada, the United States, and Mexico. $150.6 $113.6 $223.5 $579.6 $28.8 $3.6 $ $53.5 $52.1 $344.5 $1.2 $5.5

10 Trading Blocs NAFTA - North American Free Trade Agreement EU - European Union Allows for free movement of goods and workers across country borders. 18 EU countries use the Euro as their currency to further reduce obstacles to trade. 28 countries in the EU

Established to promote economic growth, free trade, and economic collaboration

11 Trading Blocs NAFTA - North American Free Trade Agreement EU - European Union ASEAN - Association of South East Asian Nations Includes 10 countries in SE Asia Established to promote economic growth, free trade, and economic collaboration between member nations Provides ASEAN countries with leverage in trading with China

12 Trading Blocs NAFTA - North American Free Trade Agreement EU - European Union ASEAN - Association of South East Asian Nations TPP Trans-Pacific Partnership

Assignments: Arguments for protectionism 1 Protect infant industries 2 Protect domestic employment 3 Protect national security 4 Protect workers in developing countries from unfair

13 Assignments: Arguments for protectionism 1 Protect infant industries 2 Protect domestic employment 3 Protect national security 4 Protect workers in developing countries from unfair labor practices 5 Protect the environment in developing countries 1. Define the argument for/against free trade 2. Explain the argument from the protectionist and free trader perspective

14 Protectionism Protect infant industries Pro Use trade barriers when a new industry is in the early stages of development Unless an industry can grow and establish economies of scale (high output with low cost per unit), it will likely not survive in competition with established industries in other countries Free traders Hard to accurately predicting which industries will grow up and be competitive Once protected Always protected

15 Protectionism Protect domestic employment Pro Protect workers from becoming unemployed due to competition from products made by workers in developing countries who usually work for much lower wages and benefits Free traders Protectionism increases prices for consumers Free trade and efficient production usually leads to new industries and jobs within those new industries Using comparative advantage (specialize and trade), enriches workers and they become consumers of international goods as well as producers

16 Protectionism National Security Both sides agree some protections are necessary Pro Important to maintain industries critical to the country s national security even when the industry cannot efficiently compete at the international level Free traders Potential for abuse by less-than-essential industries Steel production Ship building Weapons production Aircraft industry Automobile industry

17 Protectionism Protect workers in developing countries from unfair labor practices Pro (developing nations) Despite relatively bad working conditions, developing country workers would lack jobs entirely if unable to produce and sell goods abroad Over time, workers will become more established will demand better working conditions Oppose (developed nations) Limit the purchase of goods by people in the developed country Inefficient use of resources

18 Protectionism Protect the environment Pro (developing nations) Nations must be able to produce goods without being held to developed nations environmental standards because they would be uncompetitive As countries increase growth eventually the environment will become cleaner Oppose (developed nations) Limit the purchase of goods by people in the developed country Inefficient use of resources

International Economics

International Economics Unit 5 Pretest As we learn about International Economics, let s see what you already know. Remember do the best you can, but don t stress this assessment doesn t count toward your