Key Points fromPeriod 3
17.2Trade Barriers and Arguments
á Most countries have trade barriers that hinder trade.
á Trade Barrier: A means of preventing a foreign product or servicefrom entering a nation.
á Their are different forms of a trade barrier:
¤ Import Quote (Law): a limit on the amount of a good that can beimported.
o Example: 2 cows from India, 4 Canada, 1 Mexico
¤ Voluntary Export Restraint (VER): a self-imposed limitation on thenumber of products shipped to a particular country.
á Example: A county limits restrains in order to attempt to reducetrade barriers.
¤ Customs Duty: a tax on certain items purchased abroad.
á Example: tax on stuff at the airport
¤ Tariff: A tax on imported goods. Paid by individuals andbusinesses.
¤ Licenses in order to sell goods
¤ Health and safety regulation
Effects ofTrade Barrier
á Producers of many products may benefit from trade barriers,consumers lose out.
á Trade barriers result in higher prices.
á Economic conflict is another possible outcome of trade barrier
á Trade war: a cycle of increasing trade restrictions.
á Example: Smoot-Hawley tariff in 1930,
á Beef War of 1999
á Steel Tariff of 2002
á Protectionism: the use of trade to protect a nation's industriesfrom foreign competition.
á Protecting workers, infant industries and safeguard nationalsecurity.
á Protecting jobs
á It shelters work in industries that would be hurt by foreigncompetition.
á Protecting Infant Industries
á Protectionism protects new industries to learn so that they cancompete
á Infant Industry: a new industry
á Safeguarding National Security
á They want to protect American industry to insure security in caseof a natural disaster.
á They want to encourage free trade in order to pursue comparativeadvantage, raise living standards, and further international peace.
á International Free Trade Agreement: Agreement that results fromcooperation between at least two countries to reduce trade barriers and tariffsand to trade with each other.
á The Reciprocal Trade Agreement Act of 1934 gives the president thepower to reduce tariffs by 50%.
General Agreement on Tariffs and Trade (
á World Trade Organizations (WTO) is a world organization whose goalis free global trade and lower tariffs. (Acts as a referee)
á Many countries join customs union which are agreements among unionmembers and the adopt uniform tariffs for nonmembers.
á European Union (EU) a regional trade organization made up ofEuropean nations.
á Euro: a single currency that replaces individual currencies amongmembers of the EU.
á Free Trade Zones: a region where a group of countries agree toreduce or eliminate trade barriers.
North American Free Trade Organization (NAFTA) agreement that willeliminate all tariffs and other trade barriers between
1. No tariffs on farm product & other 10,000 goods >15 years
2. Automobile tariffs are to be phased pot over 15 yrs.
3. A special judge can resolve trade dispute.
4. No agreement to over ride national or state environment, health orsafety laws.
5. Trucks are to have free access along border.
Asia- PacificEconomic Cooperation (APEC): nonbinding agreement to reduce trade barriersamong their nations.
SouthernCommon Market (MERCOSUR) similar to EU,
The CaribbeanCommunity and Common Market (Caricom)
includes countries from
Amultinational corporation (
can gainexcess political power.
l Eachcountry in the world possesses different types and quantities of land labor andcapital resources which affects how nations trade. With the diversity ofresources that is spread amongst the world this causes a lot of import andexport between different nations.
l Differenteconomic patterns in countries can determine how much and when the country willspend on traded resources.
l Fivemajor economic activities are producing, exchanging, consuming, saving andinvesting.
l UnitedStates is biggest exporter, and it shows because of our debt. Even though weimport the most in the world are exports exceeds are imports.
l Tradeallows nations to specialize in a limited amount of goods while consuming agreater variety of goods. However specialization can also dramatically change anationÕs employment pattern
l AbsoluteAdvantage: the ability to produce more of a given product using a givenamount of resources.
l ComparativeAdvantage: the ability to produce a product most efficiently given all ofthe other products that can be produced.
l Lawof Comparative Advantage: the idea that a nation is better off when itproduces goods and services for which it has a comparative advantage.
l Export:a good that is sent to another country for sell
l Import:a good that is brought from another country for sell
Section 18.1ÑLevels of Development
á Development: the process by which a nation improves the economic, political, and social well-being of its people
Developed nations have a higher average level of
material well-being, whereas less developed countries (LDCs)
include the poorest countries:
á Ways to tell a developed nation:
o Industrialization: organization of an economy for the purpose of manufacture
o Labor force: skilled workers vs. unskilled, unemployment rate
o Consumer goods: how many goods are produced per capita
o Literacy Rate: percent of people over 15 who can read or write, measures the overall level of education of a country
o Life Expectancy: average expected life span of citizens
o Infant Mortality Rate: number of deaths in first year of life per 1000 live births
á Stages of development levels
o Primative Equilibrium: no formal organization, based on tradition
o Transition: Cultural traditions crumble, new patterns are adopted
o Takeoff: New industries grow
o Semidevelopment: Economy expands, enters international market
o Highly developed: Basic human needs are met easily, economy focuses on consumer goods and public services
Section 18.2: Issues In Development