TRADE

• The same factors that affect the location of economic activities in your community, state, or country also affect the location of economic activities in various countries around the world.

• Different areas tend to specialize in specific economic activities. Such specialization leads to trade.

• Trade is simply the exchange of goods and services.

Uneven Distribution of Resources

• Productive resources are not spread evenly around the world.

• For example, various parts of the world have different climates, landforms, soils, and minerals. This gives rise to diverse ecosystems with very different plants and animals. Farmers can only grow certain crops in each region. In some regions, farmers are unable to grow much food at all.

Uneven Distribution of ResourcesPetroleum• These variations can be seen by looking at one of the world's

most important natural resources petroleum. It is a key source of energy and an essential ingredient in chemical products, ranging from fertilizers to plastics. Petroleum is created by the decay of microscopic animals that once lived in the sea. The oil and natural gas their bodies create are trapped underground.

• Oil and natural gas are not found everywhere. These resources are unevenly distributed throughout the world. They are located only in those areas where conditions allowed these resources to be trapped. Many countries have almost no oil and gas. A few, such as Saudi Arabia, have a great abundance of these resources .

Human Resources

• Not only natural resources, but also human resources are unevenly distributed. Some countries, like China, have large numbers of workers with lower living costs. They are willing to work for lower wages than workers in more developed nations.

• In highly developed countries, many workers have strong educational backgrounds. Some have the experience or training to act as entrepreneurs who can organize resources to improve production.

• Such countries can design new high-tech goods. To do so requires a highly educated workforce and costly equipment.

Specialization• The uneven distribution of both natural and human

resources around the world encourages specialization. • Each region tends to make certain types of goods, based

on the productive resources it has available. Each region will produce those goods and services it can make at the lowest cost.

• Economists refer to this as comparative advantage. • Each region sacrifices less labor and time to make those

specialized goods than it would to make other goods. • By making just a few kinds of goods or services, producers

in a region can become more skilled at making them. Producers learn how to make these goods faster and more efficiently. Producers may even invest in special tools, facilities, and training to produce these goods. This helps to lower production costs even further.

How Specialization Encourages Trade• Because regions specialize,

they rarely produce everything they need. Instead, different regions depend on one another to supply many goods and services. They exchange these goods through trade. Countries and regions export products they make and import products from others.

• For example, Japan has very few natural resources. It is especially lacking in oil to meet its energy needs. Japan needs fuel for its factories, electricity, automobiles, and heating needs.

• On the other hand, Saudi Arabia has an abundance of oil. Because Japan lacks its own oil, it must import oil from other countries like Saudi Arabia. It does this by selling its own products, such as electronics (cameras and televisions) abroad. With the money it receives from selling electronics, the Japanese are able to buy oil. The Japanese are also able to buy products from other countries, such as agricultural products from the United States.

• The unequal distribution of productive resources has thus encouraged Japan to trade with others. The Japanese obtain resources they lack by taking advantage of the resources they have- skilled workers, infrastructure, and entrepreneurship.

SHORT HISTORY OF GLOBAL TRADING PATTERNS

Ancient World

Ancient Egypt• Ancient Egypt, for example, had

surplus grain and valuable minerals, including gold.

• Other places in the Mediterranean region did not have the resources that Egypt possessed.

• Egyptians traded wheat and gold with the Greeks for olives and wine.

• Egyptians like-wise exchanged their wheat and gold with the peoples of the Arabian Peninsula for spices and incense.

Ancient Roman Empire• The ancient Romans engaged in

extensive trade. They exported olive oil and wine from the hillsides of Italy across the Mediterranean Sea.

• Sicily and North Africa grew wheat, which they shipped to Rome in exchange for this olive oil and wine.

• They, also traded along overland routes across the steppes, deserts, and mountains of Central Asia to obtain porcelain and silk from China.

• They traded through Egypt, the Red Sea and across the Arabian Peninsula to obtain cotton and spices from India.

The Middle Ages

Byzantium• Constantinople, the capital

of the Eastern Roman Empire, was located on the Black Sea where Asia meets Europe.

• Traders between these two continents exchanged European goods for Chinese silks and Indian incense and spices.

Islamic World• Alexandria, Aden and other

ports were centers of trade for goods‘ from India, Africa, and throughout the Middle East.

• Brought the concept of 0, algebra, and early medicine into Europe after the Middle Ages.

West Africa• In West Africa, Timbuktu

arose as a center of the gold-salt trade. Arab merchants crossed the Sahara Desert to bring salt, cloth, and horses. In exchange, they received gold and slaves.

The Americas• In the Americas, the Maya

traded their salt, obsidian, cacao, and pottery with the people of Guatemala & tribes in North America in exchange for turquoise, jade and bird feathers.

• In the later Middle Ages, Europeans developed a new taste for Eastern luxuries after the Crusades. The city-states of Italy began an active east-west trade across the Mediterranean Sea to Constantinople, where they exchanged European goods for spices, silks and other products from Arabia, China, and India.

The Rise of Atlantic Trade• After the voyages of Christopher Columbus,

Europeans established colonial empires in the Americas and established new ocean routes to India and China by sailing around the southern tip of Africa.

• Spain established a vast colonial empire, taking new foods and vast amounts of gold and silver from the Americas to Europe.

• These new trade routes greatly enriched European rulers, and raised standards of living in Europe.

• This created a major shift in trade patterns, as trade across the Mediterranean Sea lost its importance. In its place, new Atlantic trade routes emerged. – Cities started to grow quickly, especially ports. – Merchants exchanged enslaved people from Africa, silver

and gold from Mexico, sugar cane, fur, tobacco, and rice from the Americas and furniture, clothes, and food-stuffs from Europe.

• Increased world trade also led to new wars, especially between Britain, Holland and France. By the end of the 1700’s, Great Britain emerged as the world's leading naval power with colonies in Canada, India, and Africa. Britain now dominated world trade.

Industry, Protectionism, & Empire• The development of the steamship and railroad, and the spread

of the factory system for manufacturing goods, increased the speed and scale of trade still further.

• During the Industrial Revolution, Great Britain became the workshop of the world. It imported vast amounts of raw cotton. Its factories created immense quantities of goods, which were sold abroad.

• In the 1800’s, Britain and other European countries divided Africa and Southeast Asia into colonies. These European powers established plantations and mines in their colonies to obtain raw materials for Europe's factories, and to create markets for Europe's manufactured goods.

• Britain also established trading posts in China, while the United States opened up trade with Japan and conquered the Philippines.

• Ships carrying Chinese tea, Egyptian cotton, and British manufactured and other goods now crisscrossed the oceans.

• Some countries reacted to the influx of cheap British goods by enacting protective tariffs. These tariffs added duties (taxes) to imports, making British goods more expensive.

The Collapse of Trade Barriers• In the early twentieth century, the world experienced the

Great Depression and two world wars. Countries often put up high tariffs or quotas as barriers to trade. After World War II, leading countries created rules and organizations to promote world trade.

• In 1947,the General Agreement on Tariff and Trade (GATT) was signed by 23 nations to promote world trade and to remove trade barriers.

• This later led to the World Trade Organization, created in 1995. Today, membership in the WTO has grown to over 150 members, representing more than 97% of total world trade.

• Other WTO functions include overseeing the administration of trade agreements and providing a forum for negotiations and for settling disputes.

Free Trade Associations

• Several groups of countries have also created free trade associations. In these associations, member countries create free trade zones with no tariffs or quotas. – For example, in the 1990s, the United States,

Mexico and Canada formed the North American Free Trade Association (NAFTA). Tariffs between these three countries are gradually being eliminated.

• European countries created the European Economic Community, which later became the European Union (EU).

• Members of the EU can live and work in any member country without restriction.

• There are no customs, duties, or other restrictions on goods moving from one member country in the EU to another member country.

• Most members in the European Union also use a common currency, the Euro. Since the Euro entered circulation in 2002, it has replaced each of the EU countries' former national currencies. The Euro has grown to become the second most widely held international currency after the U.S. dollar.