Chapter 5: The United States in the Global Economy

Comparative advantage

When a nation can produce a product at a lower domestic opportunity cost than can a potential trading partner

Terms of trade

Mutually beneficial; trade goods in order to do better than through domestic production alone

Foreign exchange market

A market in which various national currencies are exchanged for one another

Exchange rates

The rate at which the currency of one nation can be exchanged for the currency of another

Depreciation

When the international value of a currency declines

Appreciation

When the international value of a currency increases

Protective tariffs

Excise taxes or duties placed on imported goods; shields domestic producers from foreign competition

Import quotas

Limits on quantities of specific items that may be imported

Non-tariff barriers

Onerous licensing requirements, unreasonable product quality standards, bureaucratic delays in customs procedures, etc.

Export subsidies

Government payments to domestic producers of export goods

Smoot-Hawley Tariff Act

Meant to reduce imports + stimulate US production; caused other nations to retaliate with its own high tariffs

Reciprocal Trade Agreements Act

Aimed at reducing tariffs + started a downward trend of tariffs

Normal-trade-relations (NTR) status

Reduced US tariffs that result from negotiation apply equally to any nation that signed an original agreement

EU

European Union (________)- Regional free- trade zone including several European nations.

General Agreement on Tariffs and Trade (GATT)

Forum for negotiation of reduced trade barriers on a multilateral basis among nations

Domestic consumers

________ pay higher- than- world prices.

World Trade Organization (WTO)

Oversees trade agreements reached by member nations + rules on trade disputes among them

Doha Round

Negotiations aimed at further reducing tariffs, quotas, and agricultural subsidies

European Union (EU)

Regional free-trade zone including several European nations

North American Free Trade Agreement

________ (NAFTA0- Free- trade zone between Canada, Mexico, and the US.

Trade bloc

A group of countries having a common identity, economic interests, and trade rules

Euro

EU’s common currency; expected to raise standard of living for EU members over time

North American Free Trade Agreement (NAFTA)

Free-trade zone between Canada, Mexico, and the US

Trade Adjustment Assistance Act

Helps those hurt by shifts in international trade patterns

Offshoring

Shifting work previously done by American workers to workers located in other nations