extra international trade concepts. trade deficit occurs when the united states buys more goods from...

Extra International Trade Concepts

Trade Deficit

• Occurs when the United States buys more goods from overseas than it sells

Trade Surplus

• Occurs when the United States sells more goods to other countries than it buys

Balance of Trade

• Balance of Trade measures a country’s exports minus its imports

• Positive trade imbalance = trade surplus• Negative trade imbalance = trade deficit

Exchange Rate• When the exchange rate increases, your currency

becomes more valuable

– The dollar can buy more– The dollar is “stronger”– BUT, US goods are more expensive

overseas• When you can buy more, imports increase• When US goods are more expensive, exports

decrease• This leads to a trade deficit

– Also known as “negative trade imbalance”

The Dollar’s Effect on Exports/Imports

• When the dollar is “strong” it can buy a large amount of goods

• This will lead to the United States buying a lot of goods from overseas

• It also means that American goods cost more, so less are sold overseas

• End result = Trade Deficit

The Dollar’s Effect on Exports/Imports

• When the dollar is “weak” it cannot buy many goods

• This will lead to the United States NOT buying a lot of goods from overseas

• It also means that American goods are cheap, so many American goods will be bought overseas

• End result = Trade Surplus

Tariffs & Their Effects

• Tariff = tax on import good• Tariffs make goods from overseas cost more• Because the goods cost more, this decreases

imports• Example: America places a 100% tariff on a

computer that costs $500 in Japan• How much will it cost in America?

Increasing Exports

• Ways to increase exports:

– Lower international tariffs– Subsidize American producers

(give them money)– Lower the prices of American

goods

Effect of Exports

• When two countries are producing the same good, if one country increases its exports, what will happen to the other country’s exports?