– Hey, I'm Adrian Hill – and I'm Jacob Clifford, hello. Today we'll talk about international trade. We all know that our things are everywhere. Bangladesh, China, Vietnam, and China again, But what does this tell us about the global economy or that of the United States? Who benefits from all this trade? Who will clean up this mess? 'Kick-off' International trade is the lifeblood of the global economy. When a good or service is produced in Brazil, for example, and then sold to a company or person in the United States This is an export from Brazil and an import from the United States.
As expected, the United States is the largest importer in the world Because Americans love collectibles. In 2014, Americans imported $ 2 trillion in goods As oil, cars and clothing from other countries around the world, If you look around in a large shopping mall, you will feel as if everything is made in China. We do import a lot of things from China, but in terms of imports and exports Our biggest trade partner is not China, but Canada. Trade between the United States and Canada is more than $ 600 billion each year.
The United States imports a lot from Canada but exports roughly the same amount. The United States is the world's second largest exporter of high-tech goods Such as pharmaceuticals, jet turbines, generators and aircraft for all parts of the world. It also exports intellectual goods such as Kanye West albums and Pixar films In addition to bulk commodities such as corn, oil and cotton. The annual difference between a country's exports and imports is called net exports. So, if Brazil exports the equivalent of 250 billion dollars in goods and imports 200 billion dollars The net exports here are 50 billion. This means that Brazil has a trade surplus. In 2014, America's net exports were minus $ 722 billion, and this is called the trade balance deficit. Some people assume that a trade deficit is inherently a bad thing.
Why does the United States import almost all of its clothing? Why can't we clothe ourselves? US manufacturers can make enough clothes to meet all of our clothing needs. But they don't do that because they focus on other things they are better at making. The United States buys clothes from other countries because we can buy them cheaper Than if we produced it ourselves here. This is the value of international trade. It makes no sense to do everything yourself as long as you can trade with other countries It has a comparative advantage. It is worth mentioning here Sometimes these savings are accompanied by other costs Especially for those who manufacture these goods abroad.
Unsafe and unfair working conditions Environmental degradation can all be bad side effects of international trade. We will talk about that later. Today, let us understand the concept of the trade balance deficit. Exporting would seem to make the country rich While importing makes it poor. If we buy goods produced by other countries We transfer jobs abroad, aren't we? In fact, it is only true to some extent. Imagine if I was offered to buy either a TV made in the USA or one made in Malaysia. Because of the lower labor costs in Malaysia, imported televisions are $ 200 cheaper than the US. So, I'm going to buy imported TV, and that could mean losing jobs in a TV factory in America But I saved 200 dollars by buying the imported TV.
What am I going to do with the $ 200? I'll spend it on something I couldn't afford If only I had bought American TV. Perhaps I will take my family to watch a baseball game or to a restaurant. This creates jobs in those sectors that would not exist If only I had bought the most expensive TV. Economic theory suggests that international trade Redistribute jobs from one sector of the economy to another, Like moving jobs from TV factory to restaurant. But the quality of these jobs They may be significantly different, so is the operator of the television assembly line in the American factory He was likely making a lot more money with his industrial job before it was redistributed Become a sandwich worker at Chipotle Restaurant.
What I want to communicate is that it's very complicated What is beneficial in the end is not necessarily beneficial to the individual. For example, look at the North American Free Trade Agreement or NAFTA. It was signed in 1994 to eliminate trade barriers between Canada and the United States and Mexico. Critics of the agreement point out that NAFTA has significantly increased the US trade deficit And they say it has cut manufacturing jobs in many states Because companies moved outside the United States. While supporters of free trade point out That the US economy boomed in the 1990s, creating millions of jobs, including manufacturing jobs Free trade has lowered the prices of various consumer goods, from vegetables to cars. So, although some workers and industries are clearly affected, economists They claim NAFTA has had a positive net effect on the three countries combined. Incidentally, Thought Café, who is preparing the "imagination bubble" are Canadian. These graphics are imported. Controversy over the value of specific trade agreements continues But it is unlikely that the world's largest economies will return to an era of strict economic protectionism.
Protectionist policies, such as setting high tariffs on imports Restricting the number of foreign goods that can be imported usually does more harm than good to the economy. There are now several organizations designed to eliminate economic protectionism. Most notably the World Trade Organization or WTO. The WTO is effective in pushing countries to agree to specific rules Helping to settle disputes, but it is also accused of favoring the rich countries And its failure to protect the environment and employment. The trade is between nations It depends on the demand for the country's goods, its political stability and interest rates, But one of the most important factors is exchange rates.
This means the value of a country's currency When exchanging it for another country's currency. Let's do some foreign trade now by going to the imagination bubble. Assume the exchange rate is 15 MXN to a dollar. If he wants an American on vacation in Mexico Buy sunscreen for 60 pesos, that equates to 4 dollars. Likewise, if a Mexican woman wants to buy a shirt for $ 20, she must buy dollars for 300 pesos. Now let's think about what would happen if the exchange rate rose to 20 pesos for a spin. Now to buy the 50 peso sunscreen in Mexico, the cost to the American tourist It will be $ 3 instead of 4, at which point we say that the value of the dollar has increased.
Meanwhile, the Mexican tourist wants to buy a $ 20 shirt It will need 300 pesos instead of 400. The same applies to exports and imports. When the value of the dollar rises, it becomes cheaper to import foreign goods for the American consumer. The United States' exports to other countries become more expensive, Then America's imports rise and its exports decrease. On the other hand, what if the exchange rate fell to 10 pesos per dollar? An American tourist will need $ 6 to buy sunscreen.
Purchasing power decreased per dollar, Then we say that the value of the dollar has decreased. Meanwhile, the Mexican tourist Whoever wants to buy the $ 20 shirt will need only 200 pesos. Therefore, when the value of the dollar decreases, foreign imports become more expensive, which causes them to decline. And US exports to other countries are becoming cheaper, which means they are rising. Most currencies, such as the peso and the dollar, have floating exchange rates Varies according to supply and demand. When the United States imports more goods from Mexico They buy the peso in dollars, and this increases the demand for the peso Then the peso appreciates and at the same time the dollar falls.
After countries decided to peg their currencies to other currencies. This occurs when a country's central bank wants to stabilize the exchange rate at a specific range He buys or sells currencies to keep the exchange rate in that range. The Chinese government has been buying dollars to keep the Chinese currency artificially depreciated. When the United States buys goods with China, the yuan's value rises. Then the Chinese government buys dollars Which, in turn, keeps the exchange rate stable. This kept Chinese exports Cheap for Americans.
So far we have focused on importing and exporting goods and services, But there is another aspect of international trade that relates to financial assets. Let's look at something called the balance of payments. It may sound closer to accounting than economics but it helps us understand that financial flows And flows of goods and services are two sides of the same coin. Each country maintains an accounting statement called the balance of payments in which all international transactions are recorded, It consists of two sub-accounts, the current account And the financial account, which is sometimes called the capital account. The current account documents the restrictions of buying and selling goods and services, and the investment income realized abroad And other transfers, such as donations and foreign aid.
When America buys $ 50 billion in computers from China, the process is credited to the current account To the United States. It's a simplification when Americans spend money on Chinese goods In theory, the people of China have only two options for spending that money. Where he can either buy US goods or buy US financial assets such as stocks and bonds. These transactions are recorded in the other sub-account, which is the financial account. There is a reason that the flow of goods and the flow of money are symmetric. If consumers, businesses, and governments want to buy quantities of goods The state exceeds what is produced locally, so it must import those goods, and there is a trade deficit, That country has to sell assets to pay for those imports, and that gets recorded in the financial account.
The United States has a very low saving rate, which means that it consumes everything it produces It sells the assets to pay for the additional production it imports from abroad. Americans choose to have a trade deficit. International trade is like everything in the economy about bargaining, options, winners and losers. From a purely economic standpoint, the trade deficits and surpluses Resulting from the pursuit of people and nations to achieve their own interests. But although everyone pursues their own interests, international trade does not always serve Our individual interests. What could be beneficial to the broader global economy It could be very harmful to me or my town.
But trade in the aggregate The global standard of living does indeed improve, but sometimes this cannot be seen closely. Thank you for listening. See you next week. Crash Course Economics was prepared with the help of these nice people. You can support Crash Course on Patreon, where you can help maintain channel content Forever free for everyone, and you'll also get amazing rewards. Thanks for following you. Be amazing!.