Political Economy of International Trade

Vocabulary flashcards covering key terms and concepts in the Political Economy of International Trade.

Free trade

A policy where the government does not restrict what citizens can buy from or sell to another country.

Tariffs

Taxes levied on imports that raise the cost of imported products relative to domestic products.

Subsidies

Government payments to domestic producers to help them gain export markets or compete against low-cost foreign imports.

Import quotas

Limits on the quantity of specific goods that can be imported into a country.

Local content requirement

Mandates that a specific fraction of a good must be produced domestically.

Administrative trade policies

Bureaucratic rules designed to make it difficult for imports to enter a country.

Infant industry argument

The rationale for protecting an emerging industry until it can develop and compete internationally.

General Agreement on Tariffs and Trade (GATT)

An international agreement aimed at reducing trade barriers.

World Trade Organization (WTO)

An organization that oversees international trade agreements and resolves trade disputes.

Economic union

An agreement between countries that involves free trade and a common external trade policy, including a common currency.

Political union

A union of independent states that requires a central political apparatus for economic, social, and foreign policy.

Transnational strategy

A strategy that seeks to achieve low costs and local responsiveness by utilizing economies of scale and local differentiation.

Joint venture

A business agreement where two or more parties establish a firm that is jointly owned by them.

Wholly owned subsidiary

A company fully owned by another company, which operates in a foreign market.

First mover advantages

Benefits gained by entering a market before competitors, such as establishing a strong brand.

Exporting

The process of sending goods or services produced in one country to another.

Licensing

An arrangement where a licensor grants rights to intangible property to another entity in exchange for a royalty.

Franchising

A form of licensing in which a franchisor sells intangible property to a franchisee under strict business rules.

Acquisitions

The act of one company purchasing another company to increase market presence.

Greenfield ventures

Establishing a new operation in a foreign country, from the ground up.

Expatriate managers

Employees who are citizens of one country working in another country.

Ad valorem tariffs

 proportion of the value of the imported good

voluntary export restraints

may limit a firm's ability to serve a country from locations outside that country 

Regional economic integration

agreements between countries in a geographic region to reduce tariff and non-tariff barriers 

Free trade area

All barriers to tradeare eliminated among member countries. Members determine their own trade policies

• European free trade association + NAFTA

Customs Union

No barriers to trade between member countries, a common external trade policy and the free movement of the factors of production (Mercousar)

European Parliament

Appoints commission members/ Brussels + Luxembourg, etc

Court of Justice

Supreme Court appeals for EU law

New Transatlantic Agenda

provided foundation for relationship between EU-U.S.

North American Free Trade Agreement

U.S. + Canada + Mexico

1. Abolished tariffs on 99 percent of goods traded 

2. Removed barriers from cross-border flow of services

Mercosur

free trade pact (Brazil , Paraguay, Uruguay)

• reduce trade barriers between member states

Association of Southeastern Asian Nation

fosters trade between member countries + operation + operation in industrial policies 

• Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam

Asia-Pacific Economic Cooperation

(increase multilateral cooperation in the view of economic rise of Pacific nations) 

• 21 Nations 

Value creation

 difference between price given competitive pressures and costs of producing that product

Differentiation strategy

adding value to product so customers are willing to pay more for it

Organization architecture

totality of a firm's organization (control systems, incentives, organizational culture, etc)

Organization structure

1. Formal division of organization into subunits

2. Mechanisms to coordinate activities of subunits

Core competencies

skills within the firm that competitors cannot easily match or imitate

• Reduce costs of value creation and/or to create perceived value to achieve premium pricing 

Location economies

Economies that arise from performing a value creation activity in the optimal location for that activity 

• Low cost value creation + position 

• Differentiate product offering