Crash Course Economics: International Trade

Introduction to International Trade

• Hosts: Adrienne Hill and Jacob Clifford
• Focus: Understanding international trade and its implications on global and US economies.
• Highlights the ubiquity of global trade: goods from various countries like Bangladesh, China, Vietnam.

Basics of International Trade

• Exports and Imports:

  • Export: A product made in one country and sold to another (e.g., Brazil to US).
  • Import: A product bought from another country (e.g., US buying from Brazil).

• US Trade Facts:

  • Largest importer globally, with imports over $2 trillion in 2014.
  • Main imports include oil, cars, and clothing.
  • Largest trading partner: Canada (over $600 billion in trade annually).
  • Second largest exporter, focusing on high-tech goods and intellectual properties.

Trade Deficits and Surpluses

• Net Exports: Difference between exports and imports.

  • Surplus: Exports > Imports.
  • Deficit: Imports > Exports.

• US Trade Deficit:

  • 2014 deficit: $722 billion.
  • Misconception: Deficits are inherently bad.
  • Reason for imports: Cost efficiency due to comparative advantage.

Comparative Advantage and Costs

• Trade Benefits:

  • Countries import goods they can't produce as efficiently.
  • Leads to cheaper products.

• Consequences:

  • Job displacement (e.g., manufacturing to service jobs).
  • Potential for unsafe/ unfair working conditions in exporting countries.

Free Trade Agreements

• NAFTA:

  • Established to reduce trade barriers among the US, Canada, and Mexico.
  • Criticized for increasing trade deficits and reducing manufacturing jobs.
  • Defended for overall economic growth and job creation.

• Trade Organizations:

  • World Trade Organization (WTO): Aims to reduce protectionism.
  • Accusations: Favoring richer countries, not protecting environment/workers.

Exchange Rates and Trade

• Exchange Rates: Value of one currency in relation to another.

  • Affects costs of imports/exports.

• Currency Appreciation and Depreciation:

  • Appreciation: Domestic currency value increases, imports cost less, exports cost more.
  • Depreciation: Domestic currency value decreases, imports cost more, exports cost less.

• Floating vs. Pegged Rates:

  • Most currencies float based on supply/demand.
  • Some countries peg their currency to maintain stability (e.g., China with the US dollar).

Balance of Payments

• Definition: Account statement recording a country's international transactions.

• Components:

  • Current Account: Goods/services, investment income, transfers like aid.
  • Financial Account: Transactions in financial assets.

• Trade Deficits:

  • Result from low savings rates.
  • Countries sell assets to fund imports.

Conclusion

• International trade involves trade-offs and diverse impacts on different sectors and individuals.
• While it can improve global living standards, local negative effects are possible.

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