UNIT 2 - INTERNATIONAL TRADE

international trade

purchase, sale, or exchange of g&s across national borders

trade surplus

when the value of nation’s exports > imports

trade deficit

when the value of nation’s exports < imports

mercantilism

a trade theory which holds that the government can improve the economic well-being of a country by encouraging exports and stifling imports to accumulate wealth in the form of precious metals

neo-mercantilism

a trade theory which holds that the government can improve the economic well-being of a country by encouraging exports and stifling imports

thoery of absolute advantage

a trade theory which holds that nations can increase their economic well-being by specialising in goods that they can produce more efficiently than anyone else

theory of comparative advantage

a trade theory which holds that nations should produce those goods for which they have the greatest relative advantage

factor endowment theory

a trade theory which holds that nations will produce and export products that use large amounts of production factors that they have in abundance and will import products requiring a large amount of production factors that they lack

Heckscher-Ohlin theory

a trade theory that extends the concept of comparative advantage by bringing into consideration the endowment and cost of factors of production and helps to explain why nations with relatively large labor forces will concentrate on producing labour-intensive goods, whereas countries with relatively more capital than labour will specialise in capital-intensive goods

leontief paradox

a finding which shows that the US surprisingly exports relatively more labour-intensive goods than capital-intensive goods

IPLC - International product life cycle theory

a product with new know-how is first produced by the parent firm, then by its foreign subsidiaries , and finally by anywhere in the world where cost is the lowest => explain why a product become from a nation’s exports to its imports

embargo

a complete ban on trade in one or more products with a particular country

GATT - The general agreement on trade and tariff

a treaty that was designed to promote free trade by reducing both tariffs and non-tariff barriers to international trade

WTO

an international body dealing with rules of trade between nations

subsidy

a financial assistance to domestic producers in the formof cash payments, low-interest loans, tax breaks, product price supports, or some other form

=> assist domestic companies in fending off intenational competitors

loan guarentee

situation where the government will repay a company’s loan if the company should default on repayment

foreign trade zone

a designated geographic region in which merchandise is allowed to pass through with lower customs duties(taxes) and/or fewer customs procedures

special government agencies

responsible for promoting exports

trade barriers

effectively raise the cost of these goods and make them more expensive to local buyers

tariff

trade barriers based on the value of the goods, by adding to their price - a tax on goods that are shipped internationally

=> ….raise revenues for the gov, discourage imports ad make local products more attractive

quota

a quantity limit, restricting the number of units that can be imported or the market share that is permitted

cartel

situation where sometimes a host of international firms will fix prices and quantities sold in an effort to control price

exchange control

restrict the flow of currency

foreign investment control

limit on fdi or the transfer or remittance(payment) of fund

import tariff

levied on goods shipped into a country

export tariff

levied on goods that are sent out of the country

transit tariff

for goods that are passing through the country

a specific duty

a tariff based on units, such as 1$ for each items shipped into the country

an ad valorem duty

a tariff based on a percentage of the value of the item

a compound duty

a tariff consisting of both a specific and an ad valorem duty

dumping

the selling of imported goods at a price below cost or below that in a home country

non-tariff barrier

rule, regulation and bureaucratic red tape that delay or preclude the purchase of foreign goods => limit imports and protect domestic sales

“Buy national“ restrictions

require gov to give preference to domestic producers, sometimes to the complete exclusion of foreign firms

technical barrier

product and process standards for health, welfare, safety, quality, size and measurements can create trade barriers by excluding products that donot meet them