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Chapter 6: The United States in the Global Economy. Several economic flows link the US economy with that of other nations: Goods & Services Capital & Labor (Resource) Information & Technology Financial. U.S. & World Trade. U.S. is the world’s leading trading nation

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chapter 6 the united states in the global economy
Chapter 6: The United States in the Global Economy
  • Several economic flows link the US economy with that of other nations:
  • Goods & Services
  • Capital & Labor (Resource)
  • Information & Technology
  • Financial
u s world trade
U.S. & World Trade
  • U.S. is the world’s leading trading nation
  • U.S. depends on imports for many food items; raw silk; diamonds; natural rubber; oil
  • U.S. exports agricultural, chemical, aircraft, machine tools, coal & computer products
  • U.S. imports >> exports: TRADE DEFICIT
u s trading partners
U.S. Trading Partners
  • Most U.S. trade is w/ industrialized countries
  • Canada is largest trading partner
  • Sizeable trade deficits:
    • Japan
    • China
u s trade deficits
U.S. Trade Deficits
  • Must be financed by borrowing or earning foreign exchange
    • Selling U.S. assets through foreign investment in the U.S.
    • U.S. borrows from citizens of other countries
    • U.S. is world’s largest debtor nation
trade growth factors
Trade Growth Factors
  • Transportation technology improvements
  • Communication technology allows traders to make deals in trade & global finance very easily
  • Trade barriers have decreased since WWII
  • Trend toward free trade continues
comparative advantage
Comparative Advantage
  • David Ricardo: It benefits a person/country to specialize & exchange even if that person/nation is more productive than potential trading partners in all economic activities.
  • Specialization should take place if there are RELATIVE cost differences in production of different items
  • A nation has a comparative advantage in some product when it can produce that product at a lower opportunity cost than a potential trading partner
  • Specialization & trade can have the same effect as an increase in resources or technological progress
government trade
Government & Trade
  • Protective Tariffs: Excise taxes or duties on imported goods used to protect domestic producers, making foreign goods more expensive
  • Import Quotas: Maximum limits on number or total value of specific imports.
  • Nontariff Barriers: Licensing requirements; unnecessary, bureaucratic “red tape”
  • Export Subsidies: Promote sale of products abroad.
why do governments enact trade barriers
Why do governments enact trade barriers?
  • Misunderstanding the Gains from Trade
    • Don’t understand benefits from trade
    • Only see damage in domestic industries that can’t compete successfully w/ imports
  • Political considerations
  • Costs to Society: Harm domestic consumers with higher than world prices for protected goods.
world trade organization wto
World Trade Organization (WTO)
  • WTO oversees trade agreements & rules on trade disputes for 140 nations.
  • Criticized for having rules crafted to expand trade & investment at expense of workers & environment
  • Praised for promoting free trade as means of elevating output, income, and higher SOL
european union
European Union
  • Initiated as Common Market in 1958
  • Now has 25 member nations (as of May 2004)
  • Trade Bloc: Group of countries having common identity, economic interests, and trade rules
  • Euro: common currency among most EU countries
north american free trade agreement nafta
North American Free Trade Agreement (NAFTA)
  • Free Trade Zone established in 1993 between Canada, U.S. & Mexico
  • Critics feared loss of American jobs to cheaper Mexico
  • Results:
    • Increased domestic employment
    • Reduced unemployment
    • Increased SOL
chapter 6 study questions
Chapter 6 Study Questions
  • 2: U.S. & World Trade
  • 10: Multilateral Trade Agreements
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