Introduction to International Trade and Trade Policy

Vocabulary flashcards covering the fundamental concepts, economic history, theorems, and trade accounting definitions from the lecture on international commerce.

The Wealth of Nations

Adam Smith's 1776 book written primarily to address and correct widespread misunderstandings regarding international commerce and trade.

Econ 385

A semester-long course entitled International Economic Policy designed for non-economics majors that covers international commerce, trade policy, and objections to free trade.

Mercantilist Fallacy

The false belief that there is a fixed amount of wealth in the world, which erroneously assumes that if trading partners gain from free trade, the home country must lose.

Global Reserve Currency

A widely accepted currency, specifically the US dollar since around World War II, used globally to settle international transactions even when trade does not involve Americans.

Tariff

A special tax placed on the purchase of foreign goods to make imports more costly and encourage consumers to buy domestically produced goods.

Lerner Equivalence Theorem

A principle stemming from a 1936 paper by economist Abba Lerner demonstrating that imports and exports move in the same direction, proving that a country cannot increase exports while decreasing imports.

Comparative Advantage

The economic circumstance under which a country can produce a good at a lower relative cost or higher efficiency than another country, determining the patterns of imports and exports.

Trade Deficit

An excess of a country's imports measured in money over its exports during a specific period of time.

Trade Surplus

An excess of a country's exports measured in money over its imports during a specific period of time.

Liberation Day Tariffs

Tariffs imposed by President Donald Trump on April 2 of the prior year, explicitly designed to counter a trade deficit, which were subsequently declared unconstitutional.

Current Account

One of two standard national trade accounts that primarily tracks the dollar value of a nation's imports (recorded as negative values) and exports (recorded as positive values).

Capital Account

A national trade account (also referred to as the financial account) that records incoming foreign investments—such as purchases of domestic stocks, bonds, and real estate—and outgoing investments.

Current Account Deficit

The technical trade account balance that occurs when a nation's negative import payments exceed its positive export earnings on the current account.

Balance of Payments Identity

The international trade accounting rule stating that a nation's current account and capital account necessarily sum to zero ($\text{Current Account} + \text{Capital Account} = 0$), demonstrating that trade as a whole is never unbalanced.