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International Trade and Its Benefits
Ch. 26Section 1
Why Nations Trade
In 2005, about 10% of all the goods produced in the U.S. were exported, or sold to other countries.
A larger amount of goods were imported, or purchased from abroad
Importing goods gives Americans products they might not otherwise be able to enjoy.
Why Nations Trade (cont.)
Trade is one way that nations solve the problem of scarcity
Nations trade for goods/services because they do not have them or are unable to make them cheaply.
We buy bananas from Central America because we do not have the soil or climate to grow them; Commercial aircraft are sold to other countries because they do not have the factories or skilled workers.
Comparative AdvantageComparative Advantage is the ability of a
country to produce a good at a lower opportunity cost than another country can.
The U.S. could manufacture electronics but other countries can make them at a lower cost, so we buy them from other countries that make them
Comparative Advantage leads nations to specialize
Comparative Advantage (cont.)
Specialization allows countries to use their scarce resources to produce items better than any other country
When a country produces more than their people can actually use, they sell the extra amount abroad.
Countries can have a comparative advantage in particular resources such as Saudi Arabia (oil deposits), or the U.S. (skilled workers, advanced technology)
Comparative Advantage (cont.)
International trade does accomplish two things:
1. Creates jobs2. Creates new markets
Barriers to International Trade
Foreign countries with a comparative advantage can sell their product more cheaply than companies making the product in their own country.
As a consumer you would likely buy the cheaper product
Workers who make the product domestically may lose their jobs when sales drop
When this happens, government may step in to impose trade barriers to protect domestic workers and industry
Barriers to International Trade (cont.)Two most common trade barriers are tariffs
and quotas
A tariff is a tax on an imported good; 20% tariff means an additional 20% to the final price of a foreign good.
The goal is to make the price of an imported good higher than the price of the same good produced domestically
As a result, consumers would be more likely to buy the domestic product.
Barriers to International Trade (cont.)
However, when people want the foreign product so badly that higher prices have little effect on demand, countries have to set quotas.
Quotas set limits on the amount of foreign goods allowed into a country (imported)
During the 1980’s, Japanese cars were so popular that American autoworker jobs were threatened.
President Ronald Reagan placed quotas on Japanese-made automobiles
Trade AgreementsIn general, trade barriers cost more than the
benefits gained
Most countries try to achieve free trade with other nations
Most countries try to convince other countries to not pass laws that block or limit trade
A trend the world has been seeing lately is the formation of free trade zones among key trading partners
Trade Agreements (cont.)
The European Union (EU) is an organization of independent European nations, which formed a huge market
Goods, services, and even workers flow freely among these nations because the EU has no trade barriers
Since 2002, these countries have been linked even closer due to the adoption of a common currency, the euro.
Trade Agreements (cont.)
In the 1990’s, the U.S., Canada, and Mexico signed their own free trade agreement: North American Free Trade Agreement (NAFTA).
Elimination of all trade barriers among these countries.
Since its implementation, trade among the three countries has grown twice as fast as the separate economies themselves have grown
Trade Agreements (cont.)Opponents of NAFTA claimed that American
workers would lose their jobs because U.S. plants would move to Mexico (cheaper labor, less regulation, environmental and workers’ rights laws ignored)
Supporters of NAFTA argue that increased trade would stimulate growth and put more low cost products on the market.
Financing TradeDifferent nations use different currencies as a
medium of exchange:U.S. = dollarMexico = peso
Japan = yen
To buy something in Mexico, an American would have to exchange your dollars for pesos by using the exchange rate, or the price of one nation’s currency in terms of another country’s currency
Financing Trade (cont.)Most nation’s use an adjustable exchange
rate system which allows supply and demand to set the price of various currencies; currency prices change each day
Exchange rates have an important effect on a nation’s balance of trade.
Balance of Trade is the difference between the value of a nations exports and its imports.
Financing Trade (cont.)
If a nation’s currency depreciates, or becomes weak, the nation will likely export more goods because its products will become cheaper for other nations to buy.
If a nation’s currency appreciates, or becomes stronger, exports will decline
Positive vs. Negative Balance of TradeWhen a countries value of exports exceeds the value of imports, the country has a positive balance of trade or trade surplus.
A country is selling more than it is actually buying
When a countries value of imports exceeds the value of exports, the country has a negative balance of trade or trade deficit.
A country is buying more than it is actually selling
Do you know their meanings?
Scarcity Export Tariff Comparative advantage
Exchange rate Balance of tradeFree trade
Trade barriers Mandatory spending Fiscal year Appropriations bill Intergovernmental Revenue Property tax Automatic stabilizer Surplus Revenue Social security Debt Quota Entitlement program Excise tax Income tax 14th amendment
Progressive tax Balanced budget
What happens when the real GDP goes up?
1. The economy expands2. Unemployment rises3. Prices are inflated4. The economy suffers a
recession
The Glass-Steagall Banking Act established which federal institution?
1. The Federal Deposit Insurance Corporation
2. The Bank of the District of Columbia3. The Federal Reserve4. The 2nd Bank of the US
Warm - up1. What is a revenue?
2. List and explain 3 major types of U.S. taxes.
3. How did the Stamp Act of 1765 and the Tea Act of 1773 lead to the American Revolution?
4. What was granted by the 16th amendment?
5. What are intergovernmental revenues?
Which of the following is essential to the success of a free enterprise system?
1. Minimal government interference2. Minimal legal ground rules3. Minimal private ownership4. Minimal competition between
businesses
The forklifts that are used to load semis would be classified under which of the following 4 “factors of production”?
1. Natural resources2. Labor3. Capital4. entrepreneurs
Which form of tax revenue accounts for the highest percentage of federal income?
1. Estate taxes2. Excise tax3. Income tax4. Payroll tax
What conclusion can be reached in why the Federal Reserve Board
would lower interest rates?
1. The economy is booming and spending needs to decrease
2. The FED is encouraging the national government to borrow money from private banks
3. The FED is attempting to loosen the money supply to encourage more borrowing by individuals
4. Businesses are experiencing record losses in sales
Why would a person put money into a Certificate of Deposit (CD) instead
of a regular savings account?
1. Money is more easily accessible with CD’s
2. Savings accounts do not accumulate interest
3. A person receives greater tax benefits with CD’s
4. CD’s accumulate higher interest compared to savings accounts
Labor Unions
Ch. 22Section 2
In a complete sentence, write a statement describing each of the following (Do not just copy the definition!)–
Labor UnionsTrade UnionsIndustrial Unions
Right to work law
Closed shopUnion shop
StrikesInjunctionNational Labor Relations Board
MediationArbitrationboycott
Labor Unions are groups of workers who band together to have a better chance to obtain higher pay, benefits and better working conditions
Out of the 151 million in the civilian labor force, only 14% of American workers belong to a union.
That number has been falling since the 1980’s as we have transformed our economy from manufacturing to a service based economy.
Organized Labor
The First UnionsDevelopment
1800sPoor working conditionsWorkers fired for no
reasonWorkers blacklisted
Knights of Labor1st major union founded
in 1869Organized all laborers -
men, women, African-Americans
Terrence V. Powderly1886 peak of
membership at 700,000Ended in 1900
American Federation of Labor (AFL)Organized in 1886Denied unskilled
workers, women, African Americans & immigrants
Samuel GompersFought for higher
wages, shorter hours & benefits for disabled
By 1900 membership reached 500,000 Samuel Gompers
There are two types of unions:1. Trade unions – workers who perform the
same skills2. Industrial unions – bring workers
together who belong to the same industry
Organized labor has a three level hierarchy: local unions national unions federations
Organized Labor (cont.)
Union Guessing Game
Amer. Federation of Federal Employees
United American Nurses
Airline Pilots Assoc.
Amer. Federation of Teachers
American Postal Workers Union
Local unions are made up of workers in a factory, company or geographic area.
Usually identified with #s
Negotiates a contract with a company and monitors the contract terms
Represents the National unions agenda, while at the same time representing the desires of their constituents
Organized Labor (cont.)
National unions are the individual craft or industrial unions that represent local unions nationwide
Help employees set up local unions and negotiate contracts
In certain industries, the national union negotiates the contracts for the entire industry
Organized Labor (cont.)
At the Federation level is the AFL-CIO
Represents 13 million workers nationwide
From 1955-2005, represented virtually all unionized workers in the U.S.
Organized Labor (cont.)
Closed Shop – Companies hire only union members
Union Shop – Workers must join the union after a specified time
Agency Shop – Not required to join a union, but must pay dues
Open Shop – Companies may hire workers regardless of membership
Modified Union Shop – Workers given an option to join a union after hiring
Union Membership Policies
In the past, some labor unions supported closed shops, when a worker would have to first belong to a union to be hired by a company.
This was banned by the Taft-Hartley Act 1947
Stopped the practice of closed shops
Organized Labor
A common arrangement today is the union shop, which allows companies to hire anyone as long as they join the union shortly after they begin working
One part of the Taft-Hartley Act banned this practice as well.
22 states have passed right-to-work laws, which prevent mandatory union membership required by union shops
Organized Labor
What we see in the South are modified union shops, in which workers do not have to join a union, but if they do join have to remain a member for the duration of their employment.
A majority of workers must vote in favor of a union before one can be formed.
The National Labor Relations Board makes sure union votes are carried out honestly
Organized Labor
Process where union leaders & employers discuss employment terms
Once workers choose to be represented by a union, the union is responsible for carrying out collective bargaining.
Union and company representatives meet to discuss conditions of employment such as:
1. Wages2. Work hours3. Working conditions4. Grievance procedures5. Benefits6. Work rules and responsibilities
Collective Bargaining
Compromise is the issue3 steps
Negotiation – Labor & management meet to discuss contract issuesMediation – A neutral 3rd party hears both sides
Federal Mediation & Conciliation Service provides a mediator
Arbitration – 3rd party makes a final decision for a compromise. Has the power of a judge and both sides agree to accept the arbitrators decision.
1. Traditional Economies2. Command Economies3. Market Economies4. Laser Taser Watches
Many African countries have:
Worker/Union Strikes – workers refuse to workPicketing – used to discourage other
workers from workingBoycott – Refuse to purchase goods
or services from the companyScab – Worker willing to work on
company terms
When Collective Bargaining Fails
Business/ManagementLockout - in which the company blocks workers from
entering the workplace until they accept their contract terms.
Blacklist – A list of people who are denied employment
Businesses hope the loss in income will convince workers to accept the companies position.
Can ask the courts to issue an injunction, a legal order from the court preventing some activity (strike)Ex. 1995 MLB season
Labor-Management Conflict (cont.)
In severe or extreme labor-management dispute, government may get involved.
Can seize operations of an industry until conflict is settled.Ex. 1946 U.S. seized the coal industry because of the countries need for this energy source. Operation of the mines continued, until labor and management came to an amicable agreement
Labor-Management Conflict (cont.)
Strike Picketing
ViolenceScabs/Strikebreakers
1869 – Knights of Labor founded1882 – First Labor Day parade1886 – AFL founded1892 – Homestead Strike1911 – Triangle Shirtwaist factory fire1912 – Bread and Roses strike; Dept. Labor founded1914 – Ludlow Massacre1920 – Women get right to vote in US1946 – Largest strike wave in US history1947 – Taft-Hartley Act1955 – AFL and CIO merge1970 – Occupational Safety and Health Act passed (OSHA)1981 – President Reagan breaks air traffic controllers strike2013 – Union membership hits 97 year low (14.3 million
union members, 11.3% of population)
Major Events in Union History
1. Complimentary2. Mr. Freeze3. Inelastic4. Elastic
If an item has competing brands it is defined as:
Unions TodayRight to Work States
Prevents unions from forcing workers to join
Movement of Human CapitalRust belt – the North Sun belt – the SouthFactories & businesses moved from the
rustbelt to the sunbelt Weather was betterCheaper laborNo existing unions
White collar vs. Blue collar jobsWhite Collar = upper management
Lot of news on white collar crime in big business. Example: Enron, Merrill Lynch
Blue Collar = working class, usually doing manual labor
Blue Collar Workers
Right to Work States in Blue
Right to Work States – Why it matters?
1. Rust Belt2. Sun Belt3. White Collar4. Blue Collar
What are the type of jobs that usually occur in manufacturing sectors called?
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