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?