CSULB - FMD 457 online, Spring 2018 (Aghekyan, Marine) ~ Exam #1

Types of Trade

Protected Trade, Free Trade, & Fair Trade

Protected Trade

prevent domestic companies from having to compete with foreign companies in their own domestic markets /initiated by erecting trade barriers

Free Trade

a government trade policy that allows importers and exporters to interact w/o interference from government laws or protectionist policies. under such polices, prices for international trade transactions are primarily based on market forces - supply and demand - and are not subjected to import tariffs or non-tariff barriers to trade

Fair Trade

a system of exchange that creates greater equity and partnership in international trade

Level of Trade

Domestic Trade, International Trade, & Global Trade

Domestic Trade

Exchange of goods and services within a country

International Trade

Exchange of goods and services involving two or more countries / e.g. silk trade rout, middle east caravans, etc.

Global Trade

Includes potential interactive participation of many groups, cultures, and nations in the production and distribution of products and services. / Not only trading but also involvement in production and distribution

Trade Balance

quantiative relationship between exports and imports of a country

Economic Development Levels

Based on GDP & other indicators/ developed countries, developing countries, newly developing countries, and least-developed countries

Developed Countries

nation whose GDP per capita and other measures of well-being fall well above the world average/ Shifted emphasis from producing textiles and apparel to consuming them

Developing Countries

nation whose GDP per capita and other measure of well-being fall near or slightly below the world average / Significantly improved overall economic condition beyond those of newly developing countries / embraced the production of textile and apparel products as a way to compete in the global marketplace / no longer the lowest-cost labor sources

Newly Developing Countries

Nations whose overall economic conditions fall well below the world average in GDP per capita and other measures / apparel production continues to be the vehicle that provides employment where unemployment and poverty rates are high and wages are low

Least-Developed Countries

Rank the lowest in measures of economic well-being / Frequently begin to develop when apparel production services for export are initiated/ often suffer from governmental exploitation, ongoing tribal wars, lack of education, and traditions inhibiting change

Free Trade (pros/ cons)

Benefits: No trade barriers to restrict exchange of goods and services/ Drawbacks: Relies on market forces to determine the volume and variety of imports, frequent conflict between economic logic and political and social necessity

Globalization (def.)

Process whereby the world's people, their firms, and their countries become increasingly interconnected in all facets of their lives

Globalization

Benefits: increased freedom (travel, invest, immigrate, work); wider variety of goods & services to consumers; lower cost & price; economic growth; increased wealth; better access to medicine, information, education, technology; new jobs, higher salaries; higher leaving standards / Drawbacks: U.S. benefit more than developing countries; world poverty is not eliminated; U.S. employees lose their jobs or get shifted to less desirable locations; lose skills by outsourcing jobs (.e.g. manufacturing); lose industrial infrastructure through the closing of U.S. factories; export capital abroad (to build manufacturing plants & duplicate patterns and tooling in China, fore example) / Challenges: Unequal sharing of benefits among all nations of the world; disregard for human rights and exploitation in developing nations as cause for economic and social unrest; U.S. global companies create jobs overseas at the expense of domestic jobs

Outsourcing (def.)

shifting factory production, or services, such as call centers, to less-developed, cheaper labor countries

Outsourcing

Benefits:changing trading environment; increased opportunities due to Globalization; higher competition in domestic & international markets; lower price (low labor costs, exchange rate, efficiency, low pricing for export products); high quality, unavailability of producing domestically / Drawbacks: unfamiliar language and sets of laws; forms of protection not afforded to foreign traders; may add several weeks to lead time; for fashion merchandise, importers must consider whether goods will still be in demand when they reach the store; slow or unpredictable delivery

Supply Chain Management

Coordinating supply sources with market demands to ensure production and delivery meet customer needs / Integral part of data warehouse concept, monitoring retail sales in order to fill in-store inventory swiftly /Quick response: retailers rarely run out of stock of popular items

Economic Development Classification (Countries)

World Trade Role (Countries)

Segments of National Economy's Wealth

Types of Tariffs

Nominal tariffs, specific tariffs, ad valorem tariffs, combined tariffs

Nominal Tariffs

tax rates on imported goods published in each country's tariffs schedule

Specific Tariffs

Specific amount to pay for specific amount of product

Ad Valorem Tarriffs

based on value / sales tax / percentage of price / most popular

Combined Tariffs

specific + ad valorem tariffs

Decision Stages of Outsourcing

Determine the size of the potential market; conduct S.W.O.T analysis; find a number of qualified intl. supply sources; visit trade shows; consider risks to importing

GDP

Gross Domestic Product - market value of the output of products and services within a country in a year

GNP

Gross National Product - value of average output produced by domestic residents of a nation as they labor within that nation

Protectionism (def.)

restraining trade between nations tariffs, quotas, and other government restrictions

Protectionism

Impact: local producers have the whole market for themselves / Benefits: local producers can request any price they want; they can prosper w.o. competition (time, produce more); make the competition fairer in intl. markets / Drawbacks:

Industries w/ High Level of Protectionism

Types of Protectionism

Tariffs, quotas, and anti-dumping laws

Tariffs

the transaction value is the price that is actually payable for the goods when sold for export

Quotas

restrict quantities of goods for import or export

Anti-dumping Laws

laws against selling products in foreign at prices less than wholesale in their originating country

[Protectionism Type]

Impact / Mechanism

GATT

General Agreement on Tariffs & Trade - provided an international framework of ground rules for worldwide trade among its members, called contracting parties

WTO

World Trade Organization - an institution with more than 160 countries as members; deals with the global rules of trade among nations

Types of Legal Protectionism

[Legal Protectionism Type]

Outsourcing Reasons

Potential problems: safety issue; quality control; rejects or reorder; tariffs and duties; paperwork costs; legal problems; transportation; language (cultural & social, slang, jargon, formal appearance, avoid working in major holidays, gesture, names) / Benefits: need to satisfy consumer demand; believe there is the capability to pay for all of these purchases; w.o. imports, the fashion industry couldn't serve needs and wants of its markets

Trading Blocs

a group of countries that have created regional trade incentives and that jointly participate in trade negotiations;

The European Union (EU)

Several western European nations - specifically, Great Britain, France, Italy, and Germany (Kunz pg. 160)

The North American Free Trade Agreement (NAFTA)

North America

the US-Caribbean Basin Trade Partnership Act (CBTPA) + Central American Free Trade Agreement - Dominican Republic (CAFTA-DR)

Central America & Dominican Republic, South American countries:Chile, Colombia, Panama, and Peru

Common Market of the South / Mercosur

Argentina, Brazil, Paraguy, Uruguay, and Venezuela.

CARICOM

the Caribbean Community

the Association of Southeast Asia Nations (ASEAN)

Brunei, Cambodia, Indonesia, Laos, Malaysia Myanmar, Philippines, Singapore, Thailand, and Vietnam

the African Growth and Opportunity Act (AGOA [IV])

African Countries

Theory of Comparative Advantage

Explains that international trades occur when each country in the world focuses on a particular economic activity that it has a relative advantage in compared to other countries. Outputs from the country will then be traded with those from other countries, creating international trades