Regulation of Trade

Objective
analyze how establishing or reducing trade restrictions and addressing changes in political borders impacts the US
In this lesson, you will economy.

Glossary
TERM DEFINITION
protectionism
the practice of protecting domestic businesses by imposing restrictions on imported goods and services

tariff a tax imposed on imported goods

quota in economics, a limit on the quantity or value of goods imported or exported

dump
to export goods at prices that are much lower than their value
free trade unrestricted trade between countries with minimal or no tariffs

North American Free an agreement to eliminate most tariffs on the trade between United States, Mexico, and
Trade Agreement Canada
(NAFTA)
Dominican Republic– a free trade agreement between the United States and Costa Rica, El Salvador,
Central America FTA Guatemala, Honduras, Nicaragua, and the Dominican Republic
(CAFTA-DR)
European Union (EU) a political and economic union with 27 member states located primarily in Europe

Asia-Pacific Economic unrestricted trade between countries with minimal or no tariffs

Cooperation (APEC)
economic union a trade agreement in which member states adopt common trade regulations and allow free
movement of goods, services, capital, and labor across their borders

Protectionism
safeguard
The aim of protectionism is to ________________ domestic trade. The most
tariffs
common protectionist strategies are imposing _________________ and
quotas
________________ on imported goods. These goods could be any kind of
product
________________________, from perfume to oil.

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 Tariffs
tax
A tariff is a __________ imported
imposed on ____________________ goods. Governments impose tariffs to decrease
foreign
the supply of __________________ prices
goods and increase their ________________. When companies import
tax
goods from other countries to sell, they must pay the import ___________. To recover their increased costs,
increase the prices they charge ________________
companies ___________ consumrs for the imported goods.

Without tariffs, imported goods are sometimes cheaper than domestic goods, which means domestic goods
won’t sell as well as imported goods.
Quotas
limit
A quota is a _______________ quantity
on the ________________ of goods imported. While a tariff indirectly causes a
directly
decrease in supply because of increased costs, a quota __________________ limits the entry of
foriegn
_________________ goods into the domestic market.

Reasons for Protectionism

There are three primary reasons for protectionism:
to protect citizens’ sources of livelihood

protecting
__________________ domestic industries is a fundamental
reason
___________________ for protectionism because these industries provide
Protect Sources livelihood
people with their _______________. Domestic production creates
of Livelihood wealth
______________ employment
and ____________________. If domestic trade declines,
shur
businesses __________ lose
down and people __________ their jobs.

emerging
Often, governments engage in protectionism to allow __________________
Encourage New
strong
industries to become _______________.
Industries
unfair
A nation adopts protectionism to retaliate (get back at) against ____________
dumping goods at prices that are lower than their
trade practices such as __________
lower
value, sometimes even ____________ than the cost of production.

Retaliate Most nations don’t like being on the receiving end of dumping because it can
harm
severely _________ producers
domestic __________________. Therefore, they retaliate by
antidumping
imposing protectionist tariffs called ________________ duties on
imports
_____________ of dumped products.

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Drawbacks of Protectionism
→ While protectionism can __________increase___________decrease domestic employment and output, it
hurt
also has disadvantages that can dramatically _________ businesses and prevent the overall economy from
reaching its full potential.
sheild
→ Protectionism _________________ blocking
domestic producers from competition by __________________ or
good
limiting foreign imports. However, competition is ____________ for the market. Lack of competition leads
to these undesirable consequences:
− decreased efficiency and innovation
−
−
methods of production to achieve
Businesses devise and follow efficient ___________
productiivity from capital and labor. Protectionism
maximum _______________
removes
_________________ competition from foreign producers. Without
Decreased competition, domestic producers _______do_________don’t have the
Efficiency incentive to produce at maximum efficiency.
keeps
Competition from labor in rival foreign firms ___________ workers from
granted
taking their jobs for ___________.

In the absence of competition, businesses ________are_______aren’t

quality
Reduced Choices motivated to produce better-________________ goods at cheaper prices.
innovate
and Increased They don’t have the incentive to ________________ and come up with new
substandard
Prices kinds of products. They can sell _____________________ commodities at
higher prices knowing that consumers don’t have other options.

gravest
Arguably, the ________________ drawback of protectionism is
retaliation
_________________ from trade partners. Successful trading requires
Retaliatory
cooperation
_____________________.
Protectionism
losing
In a retaliation scenario, both nations end up ____________ export revenue
gdp
and goodwill. Loss of export revenue leads to a decrease in ___________.
goodwill
Loss of ____________________ often blows up into a trade war.

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Trade Agreements Today
boost
Several countries have entered into free trade agreements to __________ exports
______________ and foster
cooperation
economic _________________________. A free trade agreement removes barriers.
bilateral
A trade agreement can be __________________ multilateral
or ___________________.

A bilateral agreement involves A multilateral agreement is among

two nations more than two nations

Major multilateral trade agreements and unions:

North American Free Trade Agreement (NAFTA)
dominican republic- central america (CAFTA-DR)
european union (UE)
asia-pacific economic cooperation (APEC)

NAFTA
The North American Free Trade Agreement (NAFTA) is an agreement between
united
the _______________ canada
States, ___________________, and
mexico
____________________. 1994
NAFTA officially came into force in ________________.

NAFTA sought to make trade easier than before by

➢ removing trade ➢ eliminating tariffs ➢ boosting export sectors in all three
countries
barriers

NAFTA has greatly benefited the United States’ export sector. The Office of the United States Trade
Representative (USTR) describes these benefits of NAFTA:
 Canada and Mexico have become the largest export markets for more than half of American states.
 trade under nafta supports more than 140,000 small and med sized businesses
 exports of america computers, electronic products, furniture, paper, and fabricated products have tripled since 1984.

CAFTA-DR
The Dominican Republic–Central America FTA (CAFTA-DR) is a free trade agreement between:
developing
smaller ___________________ nations

the United
& - Costa Rica -
States honduras
- el salvador - nicaraugua
- guatemala - domican republic

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APEC
forum
Asia-Pacific Economic Cooperation (APEC) is an economic _____________ pacific
for 21 _____________ Rim
economies. In addition to the United States, members include:
China japan austrailia russia

APEC’s three main objectives are

 trade and investment liberalization

 business facilitation
 economic and technical cooperation
EU
union
The European Union (EU) is a political and economic _____________ composed of 27 countries located
europe
primarily in _________________. negotiations
Forming the EU was an outcome of ________________ and pacts made
world
after ___________ war
_________ II
_____. unite
The EU sought to _______________ the European nations to bring
stability
about peace and economic ___________________.
negotiations
The EU is characterized by intergovernmental _____________________ and
instituions
supranational _____________________. The governments of EU nations work
concerns
together to address common _______________. Member nations have
supranational institutions, such as the European Council, that
formed _________________
powerful
are more ___________________ than the individual governments of the
member countries. For member nations, being part of the EU entails
giving
____________ up sovereign powers, such as controlling their borders and
setting
_______________ rates
their own exchange and interest _______________.
outweigh
However, the economic and security benefits of the EU may far _______________ the drawbacks.

Summary
How does trade impact nations? What are advantages and disadvantages of free trade compared to
protectionism?
It reduces prices by eliminating tariffs and increasing competition.

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