Global Trade Chapter 12 Global Trade

Global Trade Chapter 12

Global Trade • Define as “the act of buying and selling between nations” • Do this because they either need or want something they do not have

Why do countries trade? • • • Why aren’t countries trying to be self-sufficient? The physical geography of the world Climate and land forms determine the distribution of resources around the world • Some countries will have a surplus of some resources but lack others they need to survive and grow • Eg. Canada can only have fresh vegetables in the summer, in the winter we rely on countries in the Southern hemisphere to supply us with these

Factors Affecting Trade 1. Specialization- regions tend to limit their economic activities to supplying the goods and services best suited to the regions resource base • Eg. the Maritimes are surrounded by water, therefore have a resource base of fish. A large sector of our employment is in fishing industry

2. Complementarity- characteristics of land can be present in one region but absent from another • Eg. oil reserves in Saudi Arabia allow them to specialize in oil production, Japan does not have this therefore rely on Saudi Arabia for their oil • Complementarity exists when specialization in production of a good in one area is matched by a shortage of that good in another region, result = global trade

Case Study • Pg. 291 in textbooks • Read the case study “Complementarity between Sri Lanka and Great Britian” • Answer the following questions: – What is Sri Lanka’s specialization? Why has that industry developed? – Why do they have complementarity with Great Britian? What other countries do they have complentarity with?

3. Politics- differences in political opinions can influence a countries trading habits with another one • Eg. US (democracy) will not trade with Cuba (communism) due to political differences and strained relations during the Cold War

4. Distance- proximity to your trading partner is an important factor when considering trade. The closer they are the less $ for transportation • Eg. Canada and the US main trading partners

Benefits of Global Trade 1. Keeps costs of goods and services low for the public – Without specialization in economy the prices of goods and services would increase due to the $ needed to develop them – Thanks to specialization and global trade a country can produce what their land allows them to produce with low costs and trade with other countries for the other things they need

2. Efficiency – If specialization did not exist, then the countries resources (eg. money, technology) would have to be spread more thinly to produce every thing it would need – Specialization has allowed countries to focus their resources more efficiently on the things they produce with ease

Environmental Impacts of Global Trade • As demand for product increases the volume of goods traded increases leading to different environmental consequences • Types of environmental consequences include: – Soil depletion- increasing demand for food puts pressure on the soil to full fill this need – Industrial accidents and spills- more movement of goods means more chances to have accidents that degrade the enviro

• Increased CO 2 emissions- more need for electricity (creates CO 2 when produced), more demand for manufactured goods and improved living conditions • Resource exploitation- demand for natural resources increases the pressure to produce them. May exploit resources beyond sustainability

Case Study • • • Page # 296 Case study on the Exxon Valdez oil spill Answer the following questions: – How do you think this disaster could have been avoided? – What areas of the world’s economy/ environment did it effect? – Do you think the transportation of oil is worth this risk?

Questions • • Page #298 in textbooks Under statistical analysis #1 (a, b, c, e, f) Under document analysis #2 (a, b, c, d, e) Under focus on the facts # 4, 5, 6

Policies Surrounding Global Trade • North American Free Trade Agreement (NAFTA) – Began between Canada and the US in ’ 89 as the free trade agreement – Encouraged trading between 2 countries by eliminating most tariffs and trade restrictions – Tariffs = special tax which countries can put on certain products being imported so they are not cheaper to buy then the same product made in that country

• In ’ 94 this agreement was extended to include Mexico making it the North American Free trade agreement • To sign on to this agreement meant you were signing on to these factors: – All tariffs will be eliminated by 2008 – Export and import quotes are eliminated (how much they needed to produce) – Each country is allowed to invest in the others with fewer restrictions (eg. buy a business, invest in banks or energy plants) – Intellectual property (eg. music recordings and movies) are copyrighted for a min. of 50 years – Auto industries can sell in each country with fewer restrictions

Advantages of NAFTA • Grants access to the huge American market without tariffs for Canada and Mexico • Makes US goods cheaper for the Canadian consumer • Can keep Canada more competitive in the global economy

Disadvantages to NAFTA • Loss of jobs in Canada as companies move to US and Mexico where labour costs are cheaper • Pressure on Ottawa to lower taxes so Canadian companies would have more money to be more competitive with • US cultural and economic power over Canada might increase

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

World Trade Organization (WTO) • Section of the UN • Began in 1946 under the name GATT (General Agreement on Tariffs and Trade) • It was formed after WWII between 23 countries to encourage trade again • The goals of GATT were as follows: – Set up regulations for trade between nations – Provide a place where countries could discuss trade issues and negotiate agreements – Serve as a court where trade disputes could be settled

• In their first year of existence they were able to negotiate 45 000 cuts to tariffs (about $10 billion) • Due to their success their membership increased • In 1995 GATT was renamed as World Trade Organization

The Group of Eight • Also referred to as the G 8 • Eight most economically advanced countries in the world • US, Germany, Japan, Great Britain, France, Italy, Canada and Russia • This group of country leaders meet on a fairly regularly bases to discuss economic and political problems • Eg. Met in Halifax in ’ 95 to discuss environmental concerns and persistent poverty in LDC • They will make recommendations to help improve these problems

Examples of the Global Economy Multinational Corporations

Multinational Corporations (MNC) • Large, wealthy companies that operate in more than one country • Often set up branches of companies in LDC countries because of privileges such as cheaper labor, tax cuts or slack pollution control standards • MNC will offer jobs to people living there • Example MNC’s= General Motors, Exxon Oil, Sony, Ford, Nike