Global TradeGlobal Trade

Chapter 12Chapter 12

Global TradeGlobal Trade

• Define as “the act of buying and selling Define as “the act of buying and selling between nations”between nations”

• Do this because they either need or want Do this because they either need or want something they do not havesomething they do not have

Why do countries trade?Why do countries trade?• Why aren’t countries trying to be self-sufficient?Why aren’t countries trying to be self-sufficient?• The physical geography of the worldThe physical geography of the world• Climate and land forms determine the Climate and land forms determine the

distribution of resources around the worlddistribution of resources around the world• Some countries will have a surplus of some Some countries will have a surplus of some

resources but lack others they need to survive resources but lack others they need to survive and growand grow

• Eg. Canada can only have fresh vegetables in Eg. Canada can only have fresh vegetables in the summer, in the winter we rely on countries in the summer, in the winter we rely on countries in the Southern hemisphere to supply us with thesethe Southern hemisphere to supply us with these

Factors Affecting TradeFactors Affecting Trade

1. 1. SpecializationSpecialization- - regions tend to limit regions tend to limit their economic activities to supplying their economic activities to supplying the goods and services best suited to the goods and services best suited to the regions resource basethe regions resource base

• Eg. the Maritimes are surrounded by Eg. the Maritimes are surrounded by water, therefore have a resource water, therefore have a resource base of fish. A large sector of our base of fish. A large sector of our employment is in fishing industryemployment is in fishing industry

2. 2. ComplementarityComplementarity- characteristics of land - characteristics of land can be present in one region but absent can be present in one region but absent from anotherfrom another

• Eg. oil reserves in Saudi Arabia allow Eg. oil reserves in Saudi Arabia allow them to specialize in oil production, Japan them to specialize in oil production, Japan does not have this therefore rely on Saudi does not have this therefore rely on Saudi Arabia for their oilArabia for their oil

• Complementarity exists when Complementarity exists when specialization in production of a good in specialization in production of a good in one area is matched by a shortage of that one area is matched by a shortage of that good in another region, result = global good in another region, result = global tradetrade

Case StudyCase Study

• Pg. 291 in textbooksPg. 291 in textbooks• Read the case study “Complementarity Read the case study “Complementarity

between Sri Lanka and Great Britian”between Sri Lanka and Great Britian”• Answer the following questions:Answer the following questions:

– What is Sri Lanka’s specialization? Why has What is Sri Lanka’s specialization? Why has that industry developed?that industry developed?

– Why do they have complementarity with Great Why do they have complementarity with Great Britian? What other countries do they have Britian? What other countries do they have complentarity with?complentarity with?

3. 3. PoliticsPolitics- differences in political opinions - differences in political opinions can influence a countries trading habits can influence a countries trading habits with another onewith another one

• Eg. US (democracy) will not trade with Eg. US (democracy) will not trade with Cuba (communism) due to political Cuba (communism) due to political differences and strained relations during differences and strained relations during the Cold Warthe Cold War

4. 4. DistanceDistance- proximity to your trading partner - proximity to your trading partner is an important factor when considering is an important factor when considering trade. The closer they are the less $ for trade. The closer they are the less $ for transportationtransportation

• Eg. Canada and the US main trading Eg. Canada and the US main trading partners partners

Benefits of Global TradeBenefits of Global Trade

1. 1. Keeps costs of goods and services low Keeps costs of goods and services low for the publicfor the public– Without specialization in economy the prices Without specialization in economy the prices

of goods and services would increase due to of goods and services would increase due to the $ needed to develop themthe $ needed to develop them

– Thanks to specialization and global trade a Thanks to specialization and global trade a country can produce what their land allows country can produce what their land allows them to produce with low costs and trade with them to produce with low costs and trade with other countries for the other things they needother countries for the other things they need

2. 2. EfficiencyEfficiency– If specialization did not exist, then the If specialization did not exist, then the

countries resources (eg. money, technology) countries resources (eg. money, technology) would have to be spread more thinly to would have to be spread more thinly to produce every thing it would needproduce every thing it would need

– Specialization has allowed countries to focus Specialization has allowed countries to focus their resources more efficiently on the things their resources more efficiently on the things they produce with easethey produce with ease

Environmental Impacts of Environmental Impacts of Global TradeGlobal Trade

• As demand for product increases the As demand for product increases the volume of goods traded increases leading volume of goods traded increases leading to different environmental consequencesto different environmental consequences

• Types of environmental consequences Types of environmental consequences include:include:– Soil depletion-Soil depletion- increasing demand for food increasing demand for food

puts pressure on the soil to full fill this needputs pressure on the soil to full fill this need– Industrial accidents and spills-Industrial accidents and spills- more more

movement of goods means more chances to movement of goods means more chances to have accidents that degrade the envirohave accidents that degrade the enviro

• Increased CO2 emissions-Increased CO2 emissions- more need for more need for electricity (creates CO2 when produced), electricity (creates CO2 when produced), more demand for manufactured goods and more demand for manufactured goods and improved living conditionsimproved living conditions

• Resource exploitation-Resource exploitation- demand for natural demand for natural resources increases the pressure to resources increases the pressure to produce them. May exploit resources produce them. May exploit resources beyond sustainabilitybeyond sustainability

Case StudyCase Study

• Page # 296Page # 296• Case study on the Exxon Valdez oil spillCase study on the Exxon Valdez oil spill• Answer the following questions:Answer the following questions:

– How do you think this disaster could have How do you think this disaster could have been avoided?been avoided?

– What areas of the world’s economy/ What areas of the world’s economy/ environment did it effect?environment did it effect?

– Do you think the transportation of oil is worth Do you think the transportation of oil is worth this risk?this risk?

QuestionsQuestions

• Page #298 in textbooksPage #298 in textbooks• Under statistical analysis #1 Under statistical analysis #1

(a,b,c,e,f)(a,b,c,e,f)• Under document analysis #2 Under document analysis #2

(a,b,c,d,e)(a,b,c,d,e)• Under focus on the facts # 4, 5, 6Under focus on the facts # 4, 5, 6

Policies Surrounding Global Policies Surrounding Global TradeTrade

• North American Free Trade Agreement North American Free Trade Agreement (NAFTA)(NAFTA)– Began between Canada and the US in ’89 as Began between Canada and the US in ’89 as

the free trade agreementthe free trade agreement– Encouraged trading between 2 countries by Encouraged trading between 2 countries by

eliminating most tariffs and trade restrictionseliminating most tariffs and trade restrictions– Tariffs = special tax which countries can put Tariffs = special tax which countries can put

on certain products being imported so they on certain products being imported so they are not cheaper to buy then the same product are not cheaper to buy then the same product made in that countrymade in that country

• In ’94 this agreement was extended to include In ’94 this agreement was extended to include Mexico making it the North American Free trade Mexico making it the North American Free trade agreementagreement

• To sign on to this agreement meant you were To sign on to this agreement meant you were signing on to these factors:signing on to these factors:– All tariffs will be eliminated by 2008All tariffs will be eliminated by 2008– Export and import quotes are eliminated (how Export and import quotes are eliminated (how

much they needed to produce)much they needed to produce)– Each country is allowed to invest in the others Each country is allowed to invest in the others

with fewer restrictions (eg. buy a business, invest with fewer restrictions (eg. buy a business, invest in banks or energy plants)in banks or energy plants)

– Intellectual property (eg. music recordings and Intellectual property (eg. music recordings and movies) are copyrighted for a min. of 50 yearsmovies) are copyrighted for a min. of 50 years

– Auto industries can sell in each country with Auto industries can sell in each country with fewer restrictionsfewer restrictions

Advantages of NAFTAAdvantages of NAFTA

• Grants access to the huge American Grants access to the huge American market without tariffs for Canada and market without tariffs for Canada and MexicoMexico

• Makes US goods cheaper for the Makes US goods cheaper for the Canadian consumerCanadian consumer

• Can keep Canada more competitive in the Can keep Canada more competitive in the global economyglobal economy

Disadvantages to NAFTADisadvantages to NAFTA

• Loss of jobs in Canada as companies Loss of jobs in Canada as companies move to US and Mexico where labour move to US and Mexico where labour costs are cheapercosts are cheaper

• Pressure on Ottawa to lower taxes so Pressure on Ottawa to lower taxes so Canadian companies would have more Canadian companies would have more money to be more competitive withmoney to be more competitive with

• US cultural and economic power over US cultural and economic power over Canada might increaseCanada might increase

Global OrganizationsGlobal Organizations

• Organizations which developed to Organizations which developed to monitor and facilitate trade monitor and facilitate trade between countriesbetween countries

World Trade Organization World Trade Organization (WTO)(WTO)

• Section of the UNSection of the UN• Began in 1946 under the name GATT (General Began in 1946 under the name GATT (General

Agreement on Tariffs and Trade)Agreement on Tariffs and Trade)• It was formed after WWII between 23 countries It was formed after WWII between 23 countries

to encourage trade againto encourage trade again• The goals of GATT were as follows:The goals of GATT were as follows:

– Set up regulations for trade between nationsSet up regulations for trade between nations– Provide a place where countries could Provide a place where countries could

discuss trade issues and negotiate discuss trade issues and negotiate agreements agreements

– Serve as a court where trade disputes could Serve as a court where trade disputes could be settledbe settled

• In their first year of existence they were In their first year of existence they were able to negotiate 45 000 cuts to tariffs able to negotiate 45 000 cuts to tariffs (about $10 billion)(about $10 billion)

• Due to their success their membership Due to their success their membership increasedincreased

• In 1995 GATT was renamed as World In 1995 GATT was renamed as World Trade OrganizationTrade Organization

The Group of EightThe Group of Eight• Also referred to as the G8Also referred to as the G8• Eight most economically advanced countries in the Eight most economically advanced countries in the

worldworld• US, Germany, Japan, Great Britain, France, Italy, US, Germany, Japan, Great Britain, France, Italy,

Canada and RussiaCanada and Russia• This group of country leaders meet on a fairly This group of country leaders meet on a fairly

regularly bases to discuss economic and political regularly bases to discuss economic and political problemsproblems

• Eg. Met in Halifax in ’95 to discuss environmental Eg. Met in Halifax in ’95 to discuss environmental concerns and persistent poverty in LDCconcerns and persistent poverty in LDC

• They will make recommendations to help improve They will make recommendations to help improve these problemsthese problems

Examples of the Examples of the Global EconomyGlobal Economy

Multinational CorporationsMultinational Corporations

Multinational Corporations Multinational Corporations (MNC)(MNC)

• Large, wealthy companies that Large, wealthy companies that operate in more than one countryoperate in more than one country

• Often set up branches of companies in Often set up branches of companies in LDC countries because of privileges LDC countries because of privileges such as cheaper labor, tax cuts or such as cheaper labor, tax cuts or slack pollution control standardsslack pollution control standards

• MNC will offer jobs to people living MNC will offer jobs to people living therethere

• Example MNC’s= General Motors, Example MNC’s= General Motors, Exxon Oil, Sony, Ford, NikeExxon Oil, Sony, Ford, Nike