TRADE WHY IS IT IMPORTANT?

TRADE WHY IS IT IMPORTANT?

WHAT IS TRADE? Trade is defined as the exchange, purchase, or sale of goods and services.

INTERNATIONAL TRADE International Trade is based on the importing and exporting of goods and services. The total value of international trade is now more than 25 trillion dollars a year!!! Ahhh Snap!!! International Trade has benefits for both buyers and sellers throughout Asia and Africa. Car factories in Japan, for example, are able to earn money by selling their goods in other countries. Buyers all over the world benefit as well by gaining a larger option of cars to choose from.

WHAT ARE IMPORTS AND EXPORTS? Imports are products one country buys from another. Exports are products that one country sends to another.

SPECIALIZATION Specialization is a situation where each country produces goods that it is able to make efficiently. Many nations specialize in producing certain goods and services. Specialization leads to increased international trade because countries are able to earn money selling the things they are good at making. At the same time, countries want to buy goods they are not able to produce at home.

NATURAL RESOURCES AND SPECIALIZATION Many countries specialize in a certain product because of a country s natural resources. Example: Saudi Arabia It has the largest oil reserves in the world and specializes in producing oil which it sells in large amounts to other nations. Saudi Arabia can then use the money it earns to import goods that are produced in other countries.

TRADE BARRIERS A Trade Barrier is defined as anything that can limit trade with another country. Some trade barriers are part of the physical environment. Africa s Sahara Desert and Asia s Himalayan Mountains are examples of physical trade barriers since moving goods across deserts and over mountains can be difficult if not almost impossible!!! Governments use trade barriers specifically to protect their businesses from foreign competition.

THREE KINDS OF TRADE BARRIERS GOVENRMENTS USE These are: Tariffs Import Quotas Embargoes

TARIFFS A Tariff is a tax on imports. By taxing imported goods, a country can protect the goods made in its own country. A tariff(tax) will make the imported good cost more! The effect will hopefully will be that people will buy the cheaper native country version. Example: A GMC SUV versus a Honda Passport!

IMPORT QUOTA An Import Quota limits the number of goods that can be imported into a country. It has a similar effect to tariffs because it makes a certain item harder to get. When things are rare, their price increases thus making most people buy the cheaper native country version!

EMBARGO An embargo is a ban on trade with another country. Embargoes are used for political versus economic reasons. Example: After Iraq invaded Kuwait in 1990, the U.N. imposed a strict embargo on Iraq. The goal was to pressure Iraqi Leader Saddam Hussein to withdraw his forces from Kuwait.

TRADE AGREEMENTS The goal of Trade Agreements is to increase trade with certain countries. These agreements remove trade barriers and increase wealth in countries by opening new markets and creating jobs.

FREE TRADE Free trade is defined as trade without tariffs or other trade barriers. Countries sign free trade agreements in the hope that open trade will benefit all the economies involved in the trade agreement. Example: Ten countries in Southern and Eastern Asia have joined the Association of Southeast Asian Nations(ASEAN) Free Trade Area. ASEAN countries work together to increase trade between members by eliminating tariffs and other trade barriers.

EXCHANGE RATES There are many different currencies used in the world today. A currency is defined as a system of money. Example: The U.S. Dollar A Currency Exchange Rate must be used in order for countries with different currencies to trade. The currency exchange rate tells people in one country how much their money is worth in another country.

EXCHAGE RATE TIDBITS The currency exchange rate usually changes from day to day. Each country has a different exchange rate with every other country. The only way to find out an up to date exchange rate is to check with a bank, an exchange rate service, or the internet: Here is an Exchange Rate Calculator

THE VALUE OF AN EXCHANGE RATE Bottom Line: The Currency exchange system ALLOWS foreign trade to happen. Without currency exchange rates, countries would not know how much money to change for the goods they export. They would not know what to pay for goods they import! Additional examples of different currencies are the Indian rupee, the Israeli shekel, and the South African rand.

THAT S ALL FOLKS!!!