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Global Interdependence

Global Interdependence. Obj. 9.05-.06 Chapter 26, Sect. 1 and Chapter 27, Sect.1. International Trade. Solves the problem of scarcity Nations trade to obtain goods & services they cannot produce efficiently Eat fruit in the winter (U.S.)

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Global Interdependence

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  1. Global Interdependence Obj. 9.05-.06 Chapter 26, Sect. 1 and Chapter 27, Sect.1

  2. International Trade • Solves the problem of scarcity • Nations trade to obtain goods & services they cannot produce efficiently • Eat fruit in the winter (U.S.) • Buy a computer with an operating system & components developed in the U.S. (South Africa, Vietnam, etc.) • Exports • Goods sold in another country • Imports • Goods purchased from other countries

  3. Four Reasons Nations Trade • Comparative Advantage: The ability of a country to produce a good at a relatively lower cost than another country can • Specialization • Using scarce resources to produce those things that they produce better than other countries • Can lead to over-production; producing more goods than can be consumed by all the people of a country • Surplus exported to other nations

  4. 3. Create Jobs • By exporting goods, companies can take larger orders for a good than just producing for their nation alone 4. Factors of production • Based on natural resources that are needed where they cannot be accessed or do not exist • Saudi Arabia (oil) • Can be based on sources of capital or labor • U.S. (Airplanes, weapons or educated workers)

  5. Restrictions on Trade • Tariff • Tax on imported goods • Goal is to make imports more expensive than similar goods produced domestically (cars) • Quotas • Limits on the amount of foreign goods imported • Used when higher prices on imports do little to stop individuals from purchasing them

  6. Free Trade Zones -Agreement b/w multiple nations to eliminate tariffs on goods & restrictions on number imports & exports NAFTA (North American Free Trade Agreement) 1994 • Canada, U.S. And Mexico • Eliminate barriers over time European Union (EU) 2002 • 27 member nations • No trade barriers,16 EU nations use one currency “the Euro”

  7. Globalization(interdependence) • We live in an era where nations are dependent upon one another for: • goods & services (products) • natural resources and labor (factors of production) • Trade b/w nations is a process of competition and cooperation

  8. Trade Agreements The cost of most trade barriers are higher than their benefits • Fiscally and politically • Most countries aim to achieve free trade • Countries join together with a few key trading partners to increase trade • WTO (World Trade Organization) • Oversees trade among many nations of the world • Negotiates trade rules • Helps developing nations • Settles trade disputes • Critics say it favors corporations over nations

  9. Balance of Trade • Exchange rate: the price of a nation’s currency in terms of another nation’s currency • Balance of trade: the difference b/w the value of a nation’s imports and it exports • Trade surplus: positive balance of trade • Trade deficit: negative balance of trade • Can devalue a nation’scurrencyin terms of exchange rate • Leads to surplus of money in the exporting nation • Devalued currency can lead to decrease in incomes and employment in the importing nation

  10. Benefits of Global Trade • Positive: • Businesses can make more profit • Greater competition b/w businesses can lead to lower prices and more choices • Negative: • Competition may force out weak companies which can impact national economies (U.S. car industry) • May lead to protectionism: countries place tariffs on imported goods

  11. Global Issues • Growing economic inequality b/w rich and poor nations • Warfare and famine often leads to refugees: people who leave their nation unwillingly • Due to a lack of economic opportunity in developing nations, there is increased immigration: people leaving their nation willingly to live in an industrialized one • United Nations (UN): since 1947 has promoted internationalism to help support economic development & foster parity b/w industrialized and developing world

  12. Industrialized nations • US, UK, Germany, Japan, Canada, France • Have natural resources such as coal or iron (or access to it) • Large industries • Consume much of the world’s natural resources

  13. Developing Nations • Chad, Belize, Albania • Often have few natural resources • Cannot feed their population • Manufacture few products • Low life expectancy (40 yrs.) and literacy • Saudi Arabia, Venezuela, India • Possess great wealth of natural resources • Many were once colonies of industrialized nations • May be developing industry and human capital

  14. Use your notes to answer • Why do nations trade with each other? • What is the difference between an import and an export? • How does comparative advantage influence trade? • How do tariffs and quotas restrict trade? • What is NAFTA? Why do countries engage in free trade? • Describe one positive and one negative aspect of global trade. • Name 2 industrialized and 2 developing nations. What are the characteristics of these nations?

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