Study Notes for International Trade and Exchange Rates

International Trade and Exchange Rates

Benefits of International Trade

  • Specialization: Nations benefit from specializing in goods/services with a comparative advantage, increasing productivity and profits.

  • Economic Interdependence: Countries rely on others for goods not produced domestically.

Types of Advantages

  • Comparative Advantage: Ability to produce a product at a lower opportunity cost.

  • Absolute Advantage: Ability to produce more using fewer resources.

Trade Barriers

  • Definition: Government-induced restrictions that limit free trade.

Types of Trade Barriers

  • Tariffs: Taxes on imported goods, making foreign products more expensive.

  • Quotas: Limits on quantities of a good that can be imported, benefiting domestic producers at the expense of consumers.

  • Embargoes: Complete trade restrictions with a particular country, leading to higher prices due to reduced competition.

  • Subsidies: Government payments to domestic firms allowing competitive pricing but harming foreign industries.

Economic Impact of Trade Barriers

  • Raise prices and may temporarily protect domestic jobs.

  • Desire for Protectionism vs consequences like Trade Wars (increasing trade barriers).

Trade Agreements

  • Definition: Cooperation agreements between countries aimed at reducing trade barriers and enhancing efficiency.

  • Example: USMCA - removes most trade barriers among the U.S., Canada, and Mexico.

Measuring Trade

  • Balance of Trade: Net exports - difference between exports and imports.

    • Trade Surplus: More exports than imports.

    • Trade Deficit: More imports than exports.

Georgia in International Trade

  • Exports: 90% manufactured goods, 10% agriculture; key sectors include aerospace and automotive.

  • Foreign Investment: $11.6 billion from international corporations, creating jobs.

  • Ports: Major ports like Savannah and Brunswick facilitate significant exports, with Savannah being the fastest-growing container terminal.

Georgia's Infrastructure

  • Inland Port: Connects rail to Savannah, improving delivery speeds.

  • Airports: Hartsfield-Jackson in Atlanta is the busiest airport globally.

  • Corporations: Headquarters of major companies (Coca-Cola, UPS, Delta) driving economic impact.

Exchange Rates

  • Exchange Rate Definition: Price of one nation's currency in terms of another.

  • Effects of Exchange Rate Changes:

    • Appreciation: Currency value rises, purchasing more internationally.

    • Depreciation: Currency value falls, purchasing less internationally.