8. The global economy and

International trade

Exercise 1. Read and memorize the following words, word-combinations and word-groups.

to benefit — отримувати користь

transaction — справа, угода; ведення ділових операцій

advantage — перевага

to restrict — обмежувати

revenue — прибуток; джерело прибутку

to levy — оподаткувати

surplus — надлишок

revenue tariff — тариф на прибуток

protective tariff — пільговий тариф для вітчизняного ви­робника

dumping — демпінг; розвантажування

administrative red tape — адміністративне регулювання e

Exercise 2. Read and translate the text.

Nations trade with one another for the same reason that individuals and business firms within a country trade: both sides expect to benefit from the transaction. They benefit because trade enables them to exchange things they don't need (their surplus goods and services) for the things they do need and want. Some areas can produce things that others cannot. Because of its warm climate and the type of soil it has, Florida grows oranges but not wheat. Kansas grows no oranges, but it does grow wheat. The people in Florida and Kansas would like to have wheat and oranges, and so each specializes in one of those crops and trades its surplus with the other.

Manufacturing can also be performed more efficiently in some parts of our country than in others. Natural resources, an adequate labour supply, and transportation facilities have promoted the development of certain industries in particular regions of the country. For example, the computer industry is concentrated in northern California, the steel industry developed in western

Pennsylvania, and large automobile factories were first built in southern Michigan.

Absolute Advantage. Nations will gain because of differences in terms of climate, natural resources, labour supply, capital, and technology. These differences make it sensible for them to specialize in the production of some products and to buy the other things they need from other countries.

Despite the many advantages of trade between nations, most countries, including our own, often restrict that trade in a number of ways. Some of these ways are discussed below.

Tariffs. A tariff is a duty, or tax, on imports. There are two basic types of tariffs. Revenue Tariffs are levied as a way to raise money. Through most of its history (until 1910), the United States looked to the revenue tariff as its principal source of income.

Protective Tariffs are levied to protect a domestic industry from foreign competition. The goal is to make the foreign product more expensive than a similar item produced in the United States. Then people will stop buying the foreign made item and purchase its domestic counterpart.

Quotas. Restrictions on the numbers of certain specified goods that can enter the country from abroad are called quotas. Like protective tariffs, quotas limit the amount of foreign competition a protected industry will have to face. In the 1980's, for example, the government protected the U.S. automobile industry by placing a quota on the number of automobiles that could be imported from Japan.

Other Tactics. There are a number of other devices that directly affect the flow of trade among nations. One of these is the expect subsidy — a payment by a country to its exporters that enables them to sell their products abroad at a lower price than they could sell them for at home. Selling the same product for a lower price abroad than at home is called dumping.

Still another tactic that has been used to restrict foreign trade can be classified as «administrative red tape». This is the deliberate use of governmental rules and regulations to make it difficult to import goods from abroad.

Exercise 3. Answer the following questions.

1. Why do countries trade with each other?

2. What is absolute advantage?

3. Why do nations gain when they specialize?

4. How can you explain the term «comparative advantage»?

5. What does the law of comparative advantage explain?

6. Why do most countries restrict trade?

7. In what ways do some countries restrict trade?

8. What is tariff?

9. How can quotas restrict trade?

Exercise 4. Give English equivalents of the following.

отримувати прибуток від операцій; спеціалізація з виробництва деяких товарів; виробляти товар з меншими витратами; імпортувати товар із-за кордону транспортні засоби; мати переваги; природні ресурси; джерело прибутку; обмежувати торгівлю; вести торгівлю.

Exercise 5. Define the terms.

transaction revenue

to specialize tariff

to restrict trade quota

dumping administrative red tape

Exercise 6. Translate into English.

1. Держави ведуть торгівлю з тих самих причин, що й приватні особи та фірми.

2. Держави отримують зиск від торгівлі тому, що вона дає їм можливість обмінювати над­лишок товару, який вони виробляють, на товар, у якому вони мають потребу.

3. Природні багатства, транспортні засоби, трудові ресурси дали поштовх розвиткові окремих видів промисловості.

4. Різниця в кліматичних умовах, при­родних багатствах, трудових ресурсах зробила можливою спеціалізацію з виробництва окремих видів товарів.

5. Незважаючи на значні переваги торгівлі, більшість країн запроваджує обмеження на торгівлю.

6. Упродовж історії свого існування США розглядали фіскальні тарифи як головне джерело надходжень.

7. Для того щоб захистити вітчизняну промисловість від іноземної конкуренції, існують тарифи, мета яких — зробити зарубіжний товар дорожчим за такий самий товар, виготовлений у країні.

8. Квоти знижують рівень конкуренції, з якою може зіткнутися вітчизняна промис­ловість, обмежуючи кількість імпортованого товару.

Exercise 7. Read and dramatize the following dialogue.

A.: It's amazing!

B.: What's amazing?

A.: We had an assignment the other day to discover how much we depend on foreign trade.

B.: What's so amazing about that?

A.: I found that my clock radio was made in Japan, my slippers came from Taiwan, my robe from India, my comb was made in Mexico, my sweater was from Scotland and my shoes were from Italy.

B.: And I want to treat you to the hot chocolate made by a Swiss company out of cocoa beans from Ghana and sweetened with sugar from Ecuador.

A.: I see that we are all dependent upon the goods and services from other countries, and imports have risen steadily almost every year in the past.

B.: But why do countries trade with each other?

A.: Trade among nations takes place for the same reasons that it does within a nation; to obtain goods and services that a region could not produce itself, or to obtain them at a lower cost than they could be produced for at home. This is explained by the principle of comparative advantage.

B.: But I've heard that some countries put up barriers to trade and what is the reason for that?

A.: Despite the advantage of international trade, most nations have erected artificial barriers to that trade. These barriers are usually in the form of tariffs or quotas.

B.: And how are payments made in international trade?

A.: Imports must be paid for in a currency that is acceptable to the seller. In order to facilitate these transactions, there is a market for the currencies of all trading nations. The selling price of one nation's currency in term of the cu­rrencies of other nations is known as its ‘exchange rate’. Exchange rates fluctuate in accordance with the law of supply and demand.

B.: How do exchange rates' fluctuations influence the nation's exports and imports?

A.: When the value of a nation's currency is decreasing in terms of other currencies, its exports are likely to increase because they will be less expensive to people in foreign countries. Imports, in these circumstances, are likely to decrease because foreign goods will become more expensive. When a nation's currency is appreciating in terms of other currencies, the opposite is likely to occur.

В.: I see. And why do economists look to the balance of payments?

A.: The balance of payments summarizes the transactions that have taken place in international trade over a given period of time, usually one year, Economists look to the balance of payments for clues to future trends in the value of a nation's currency and other consequences of its foreign trade.

Exercise 8. Make up your own dialogue using the following expressions.

to levy protective tariffs to benefit from the transaction

to specialize in the production of to limit the amount of foreign competition

to place a quota to exchange things

to be concentrated to restrict trade

Exercise 9. Problem solving.

1. American steel production is down. Many steelworkers are unemployed. The equipment sits idle. A bill before Congress proposes high tariffs and quotas to protect the steel industry from imported steel.

a) Explain how each of the following parties might respond to the issue.

Steel industry Iron and steelworkers Consumers Auto industry

b) Considering the position of different groups in the economy, do you believe it would be a wise or unwise economic decision to protect the steel industry from foreign producers? Explain your position.

2. Describe the position you would take on high tariffs, quotas or voluntary restraints on automobiles manufactured in Japan if you were:

a) the owner of an American automobile company;

b) a worker in that automobile plant;

c) a consumer interested in buying a new automobile;

d) an American manufacturer of computer parts to be sold in Japan.

Exercise 10. Advantages and Disadvantages of International Trade.

International trade is enormously beneficial for entrepreneurs and enables producers of goods and services to move beyond the domestic market. But ‘every medal has the reverse’ and international trade has its advantages and disadvantages.

Read the following statements and fill in the table which follow.

• Enhance your domestic competitiveness

• Hire multilingual staff to launch international trading

• Increase sales and profits

• Gain your global market share

• Modify your product or packaging to enhance competitiveness

• Reduce dependence on existing markets

• Incur added administrative costs

• Exploit international trade technology

• Develop new promotional material to meet cultural requirements

• Extend sales potential of existing products

• Stabilize seasonal market fluctuations

• You may need to wait for long-term gains

• Dedicate personnel for travelling

• Enhance potential for expansion of your business

• Wait long for payments

• Sell excess production capacity

• Apply for additional financing

• Deal with special licenses and regulations

• Maintain cost competitiveness in your domestic market

Advantages of International trade	Disadvantages of International trade

Exercise 11. Fill in the gaps providing the translation of the words and expressions given in brackets.

International trade is the 1) e_____e (обмін) of goods and services across international 2) b_____ (кордони). In most countries, it represents a 3) s_____ (значний) share of GDP. While international trade has been present throughout much of history, its economic, social, and political importance have been on the rise in recent centuries, mainly because of industrialization, advanced transportation, globalization, multinational corporations, and outsourcing. In fact, it is probably the increasing 4) p_____ (переважання) of international trade that is usually meant by the term "globalization".

International trade is also a branch of economics, which together with International finance, forms the larger branch of International economics.