Resource Distribution

The factors of production are not evenly
distributed throughout the world
 Human capital is more skilled in nations with
higher literacy rates
 Physical capital is deeper in some nations
 Better machinery
 Infrastructure is better
Resource Distribution

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The unequal distribution of resources
encourages nations to specialize
Although some countries could be self
sufficient, it is to their advantage to
specialize...why?
Absolute and Comparative Advantage

Absolute advantage...when one nation can
produce a good at a lower cost than
another
 Comparative advantage...the ability for a
nation to produce at a lower opportunity
cost
 The nation with the lowest opportunity cost
should specialize in that product
 Known as the law of comparative advantage
International Trade

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Since some countries may have a
comparative advantage over others, it
makes sense for them to trade
The US and trade
 The US is the largest importer and one of
the top three exporters of goods (Germany
and China)
YouTube Video
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https://www.youtube.com/watch?v=KDiL
1HKFmDc
US Exports

The US is among the top three
exporters in the world
 Flips with Germany and China
 China current leader (since 2009)
Exports
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Food, beverage and feed: $133 billion. Soybeans were the number one product in
this category, with sales of $22 billion, followed by meat and poultry at $18 billion.
Crude oil, fuel and other petroleum products: $109 billion. This is one of the
fastest growing areas of US exports, up 37% in just the last year.
Civilian aircraft and aircraft engines: $99 billion. This is what makes Boeing the
nation's largest single exporter.
Auto parts, engines and car tires: $86 billion. Many of these are shipped to
assembly plants owned by both US and foreign automakers in Mexico and Canada.
It's one of the reasons losing NAFTA would be so hard for the auto industry.
Industrial machines: $57 billion.
Passenger cars: $53 billion. American auto plants supply much of North and South
America with cars, and also ship to other markets as well. BMW's largest plant is in
South Carolina, where it builds all of its X series SUVs. Last year it exported nearly
three-quarters of the 371,000 cars it built there, making it the biggest car exporter in
the United States.
Pharmaceuticals: $51 billion.
US Imports
We are also one of the largest
importers.
 In total, we import more than we export
 We have a trade deficit

Imports
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The largest U.S. import category is capital goods at $678 billion.
Businesses import $131 billion in computers and related equipment.
They also import $117 billion in telecommunications and
semiconductors.
The Consumer goods category is almost as large at $654 billion. Most of
this is pharmaceuticals ($149 billion) and cell phones/TVs ($132 billion).
Next is apparel and footwear ($130 billion).
U.S. manufacturers import $522 billion of industrial supplies. Of this,
$191 billion is oil and petroleum products. The United States
also imports $376 billion worth of automobiles and $151 billion in food
and feedstock.
Services is a large and growing category. In 2019, U.S. service imports
totaled $588 billion. Almost half was travel and transportation services at
$262 billion. The next was computer services and other business
services at $161 billion. Finance and insurance services were $84
billion. The government services category was $24 billion.
Trade on Employment

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International trade has caused many
changes and trends in employment
Due to comparative advantage, workers
need to gain certain skills in order to find
employment
Free Trade?

Many people argue that governments
should regulate trade in order to protect
industries and jobs from foreign
competition
 This is known as protectionism

Many nations set up trade barriers in
order to provide protectionism
https://www.youtube.com/watch?v=JqGCZ4wmxs
Trade Barriers

Trade barriers...trade restrictions that
prevent foreign products or services
from freely entering a nation’s territory
 Import quotas...limits on the amount that can
be imported
 Voluntary Export Restraints...self imposed
export restraint (hopes to avoid import
quotas
https://www.youtube.com/watch?v=LKCMnCZyxiQ
Trade Barriers

Tariffs...taxes on imported goods
 Customs duty
 Used to encourage purchasing of domestic
products

Other Trade Barriers
 Licenses
 Standards of production
Effects of Trade Barriers

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Increased prices for foreign goods
Trade Wars
 When countries institute restrictions on each
other
 Usually leads to poor trade for both
countries
Arguments for Protectionism
Protects jobs
 Protects infant industries
 Protects national security

https://www.youtube.com/watch?v=Rylkrzn7A9g
International Trade Agreements

Recent trends are encouraging free
trade…why?
 Raises living standards
 Encourages world peace
 Promotes competition
 International Free Trade Agreements
○ Cooperation of two or more countries to
reduce trade barriers
World Trade Organization
GATT...general agreement on tariffs and
trade...founded in 1948
 WTO…a worldwide organization whose
goal is freer global trade and lower
tariffs...founded in 1995 to ensure GATT

 Acts as a referee for trade agreements
Free Trade Zones

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Areas established by countries to
reduce or eliminate trade barriers
Two such Organizations
 European Union (EU)
 North American Free Trade Agreement
(NAFTA)
European Union

Regional trade organization made up of 27
member nations
 Essentially developed a single market
(EEC...European Economic Community) in
Europe
 Goal is to create a single economy that
rivals the US
 Currently the largest trading partner of the US
 Canada and Mexico are next
EU
NAFTA
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Created to eliminate all tariffs and
barriers in the region (Canada, Mexico,
US)
Ratified in 1994
Although there has been much
controversy, NAFTA has increased trade
between the three nations
https://www.youtube.com/watch?v=DwKR08t5BGA
Balance of Trade
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Trade surplus...export more than you
import
Trade deficit...import more than you
export
Balance of trade...relationship between
exports and imports