International Trade and Globalization Concepts

These flashcards cover key concepts related to international trade and globalization, including theories, definitions, and strategies.

Why do nations trade with each other?

To specialize in what they produce efficiently, access goods they can’t produce, increase variety, lower costs, and improve overall economic welfare.

Absolute Advantage

When a country can produce a good more efficiently (using fewer resources) than another country.

Comparative Advantage

When a country benefits by specializing in goods it produces at a lower opportunity cost than others.

Heckscher-Ohlin Theory

Emphasizes that countries export goods that use their abundant factors and import goods that use their scarce factors.

Product Life Cycle Theory

New products are produced in the home country first, then production shifts abroad as the product matures.

New Trade Theory

Trade can arise even between similar nations due to economies of scale and first-mover advantages.

Free trade vs. government policy

Core debate where free trade increases efficiency, while government intervention protects industries, jobs, and national interests.

Globalization

Increasing interconnectedness of economies, cultures, and markets.

Protectionism

Government policies that restrict imports to protect domestic industries.

Dumping

Selling goods abroad below cost or below home-market prices.

Anti-dumping

Government actions (like tariffs) to counteract dumping and protect domestic firms.

Tariff

A tax on imports that raises prices and protects domestic producers.

Subsidy

Government financial support to domestic producers to lower costs.

Quota

A limit on the quantity of a good that can be imported.

Voluntary Export Restraint (VER)

When an exporting country agrees to limit exports, usually under pressure.

Local Content Requirement

A rule requiring a certain percentage of a product to be made domestically.

Value Creation

The difference between the value customers place on a product and the cost of producing it.

Global Standardization Strategy

High cost pressure, low local responsiveness, producing standardized products worldwide.

Localization Strategy

Low cost pressure, high local responsiveness, customizing products for each market.

Transnational Strategy

High cost pressure + high local responsiveness, balancing efficiency and customization.

International Strategy

Low cost pressure + low local responsiveness abroad, leveraging home-based competencies.