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Free trade without barriers.

When trade is both voluntary and free, the buyers and sellers benefit from it

Since voluntary trade is mutually beneficial, it creates wealth

Wealth-is the collective value one owns

International trade.

when you trade with people in other countries the same result of mutual benefit and wealth creation occurs.

The General agreement on tariffs and trades(GATT), is a movement that was created by several countries and the goal was to reduce trade barriers so that the countries could engage in free trade.

Case against international trade.

Detractors of free international trade include,

  • Environmentalists are concerned that as countries specialize production will concentrate in countries that have few regulations.
  • Labor unions oppose free trade on the grounds that production will shift towards low wage countries that have little or no representation.
  • Human rights activities often oppose free trade as production shifts towards countries where working conditions are miserable and inhuman.
  • Politicians and their constituents are with loss of national sovereignty often oppose free trade agreements on the ground.

Trade barriers.

At times a might limit trade in order to accomplish these other interests.

The government might accomplish this by;

  • Tariffs
  • Quotas
  • Embargoes


 It is a tax on trade.

They can be used to raise the governments revenue in order to benefit a certain segment of the economy

Downsides of tariffs include;

  • Protective tariffs often have the effect of preventing competition and encouraging waste and efficiency
  • Revenue tariffs often fail to raise tax revenue because people stop buying the now expensive imports
  • Export tariffs might give producers an incentive not to produce


Quotas are limits on trade

Instead a tax on imports, you might use a quota to limit the number of goods been imported into your country.

Price-the momentary amount for which consumers and producers buy and sell some quantity of a good or a service.

Problems created by quotas include;

  • They do not generate tax revenue for the government.
  • They provide an incentive to smuggle goods illegally thus creating black markets.
  • In addition, they may be manipulated by foreign firms to limit competition from other foreign firms.


It is a ban on trade with another country.

The main purpose of an embargo is usually to punish a country for some offence either committed.

For example, the embargo on America against Cuba


International Trade
The exchange of goods and services among businesses in various countries

  • multinational corporations
  • international business companies

Also involves imports and exports

  • a country will have few partner countries with whom they do the majority of their importing and exporting

The items transported into a country from a foreign country

In the United States, this includes:

  • industrial supplies (i.e. crude oil)
  • capital goods (i.e. computers and agricultural products)
  • consumer goods (i.e. automobiles, clothing, furniture)

The items transported out of a country to a foreign country

In the United States, this includes:

  • electronic equipment
  • aircraft and spacecraft
  • pharmaceuticals
  • organic chemicals

Balance of Trade
Trade dependency is when a country relies heavily on exports. This can result in a negative impact on the country’s economy when exporting decreases

Trade deficit: if a country’s import exceeds its exports the trade balance will be negative. A negative trade balance equals a deficit.

Free Trade
A policy in which there is no government regulation and countries may trade as they please

Does not involve trade barriers or tariffs placed on imports or exports

Tariff: taxed set in imported goods

Free Trade Zones
Specified areas where materials and finished goods may be landed, stored, displayed, assembled, reconfigured and re-exported into customs territory and foreign points free of customs duties — also called foreign-trade zones or free trade zones

Antitrust Laws
Legislation preventing exclusive possession or control of the supply or trade in a product or service — with the intention of promoting fair competition and encouraging the production of quality goods and services at the lowest price

Primary goal of safeguarding public welfare by ensuring consumer demands are met by the manufacturer as well as the sale of goods

Sherman Act:

  • the original, principle and foremost antitrust statue in the United States
  • passed in 1890, this law prohibits businesses from restraining free trade and prevents monopolies from forming in the market


  • increases government funds

Ad valorem

  • percentage of the value of the import


  • quantitative as far as the amount of goods rather than the value of the goods (Ex: the number of goods and/or the weight of goods)

An absolute ban on imports or exports in a certain country

Not as common as other types of Trade barriers

Usually enacted for political reasons or as a form of protest against another country

U.S. placed an embargo on Cuba after the Cuban missile crisis

Regulations limiting the amount of imports being sold in a certain country — can be regulated during a specific time frame

Used to maintain and manipulate prices — supply and demand

Laws which recognize health and safety requirements on imported goods

Generally used on domestically produced products to ensure safe consumption

Payments made by the government and given to producers

Allows producers to be a contender with competitiors by minimizing financial burdens — intended to be temporary

Exchange Control
Method which intervenes on trade to keep payments balanced and control the currency rate


  • protecting domestic industries
  • maintaining consistent rates
  • restoring balance of payments

Fixed exchange rate

  • countries maintain their currencies at a fixed rate and only change the value when an economic situation occurs

Flexible exchange rate

  • rates are determined freely and the rate will fluctuate day to day

Imposes extra costs on imports in order to protect local businesses — helps to keep businesses from losing jobs

Offsets advantages countries have, such as low wages

International Trade Agreements
Contractual arrangements between and among countries concerning their trade relationships

State conditions for trade among member countries — policies on tariffs and other trade barriers

Bilateral Trade Agreements
Involves an agreement between two nations — for example Canada-European Free Trade Association (EFTA)

Multilateral Trade Agreements
Involves more than two nations who have similar interests — for example General Agreement on Tariffs and Trade (GATT)

Regional Trade Agreements
Involves mutual trade agreements among two or more partners within the regional trade bloc — for example, North American Free Trade Agreement (NAFTA)

Trade bloc: provides defense for a group of countries within a region against tariffs and other trade barriers

Canada-European Free Trade Association
A free trade agreement among Canada and the EFTA countries:

  • Iceland
  • Liechtenstein
  • Norway
  • Switzerland

General Agreement on Tariffs & Trade
An agreement which provides the following for goods, services and property:

  • fair trade rules
  • reduction on tariffs
  • duties
  • other trade barriers

Also provides rules for much of world trade

When a producer sells a product below the sale price of their home market — products are sold at a lower cost than production to do away with surplus items

Surplus: excess, greater amount than necessary

North American Free Trade Agreement
Trade agreement with sets rules for trade and investment among the following countries:

  • United States
  • Canada
  • Mexico

Considered to be one of the world’s largest free-trade zones

North American Free Trade Agreement (Pt. II)
Created in 1994 and has removed most tariff and non-tariff barriers to free trade between the NAFTA countries

Has worked to:

  • increase trade and investment
  • provide strong economic growth
  • create jobs
  • generate better prices for consumer goods

To examine trade barriers such as tariffs and the reason they exist

To explore the international trade market

To identify organizations and governmental regulations concerning trade

To analyze free trade zones locally, statewide and internationally as well as determine their ASEAN
This is a political and economic organization of 10 countries in Southeast Asia to improve economic growth.

This is the process of prohibiting commerce and trade with another country. This is often done to affect the country to change an internal policy.

European Union
This is a political and economic group that was formed in 1992 to encourage cooperation between the 27 member states.

This is any good transported from one country to another.

Free Trade
This is the practice of goods being traded between countries without any (or with reduced) tariffs that might slow down trade.

These are goods that are brought into one country from another.

This is an agreement signed in 1992 and put into effect in 1994 was created to reduce tariffs between the United States, Canada, and Mexico

Protective Tariff
This is a tax on imported goods designed to prevent domestic companies from having to compete with foreign goods of lower price or superior quality.

This is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.

This is the name for a category of trade barriers that a country may impose on another country or countries.

This is financial assistance from the government to encourage the production of or the purchase of a good.

This is a tax on imported goods and is usually designed to protect domestic production of similar goods.
This is general name for the voluntary exchange of goods and or services.

Trade Barrier
This is a restriction to regulate international commerce and business.

Unfavorable Balance Of Trade
This is a situation that exists when a country imports more than it exports.

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