Ch 5 & 6 of IB

What tariffs did Trump impose on steel and aluminum imports?

A 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports.

What was the rationale behind Trump's tariffs?

To protect industries important for national security.

What do critics argue about tariffs?

That tariffs raise input costs for consumers, manufacturers, and contractors.

How does Trump view trade policy?

As a zero-sum game.

What was the U.S. trade policy prior to Trump?

It supported lower trade barriers and the free flow of goods and services.

What is the primary argument for free trade according to economists?

That it stimulates economic growth and raises the standard of living.

What is the theory of absolute advantage?

The ability of a country to produce a good more efficiently than another country.

What does the invisible hand of the market refer to?

The self-regulating nature of the marketplace.

What is the benefit of international trade?

It allows countries to specialize in the manufacture and export of products they can produce most efficiently.

What does Ricardo's theory of comparative advantage explain?

Trade patterns reflect differences in labor productivity.

What does the Heckscher-Ohlin theory focus on?

The interplay between the proportions of production factors available in different countries.

What does Vernon's theory suggest about trade patterns?

They reflect the product life-cycle.

What is strategic trade policy?

A limited and selected government intervention to support certain export-oriented industries.

What is mercantilism?

The belief that a country should maintain a trade surplus by exporting more than it imports.

What is a key criticism of mercantilism?

It can lead to inefficient allocation of resources and reduce national wealth in the long run.

What is an absolute advantage according to Adam Smith?

A country has an absolute advantage when it can produce a product more efficiently than any other country.

How does trade benefit countries with absolute advantages?

Countries should specialize in producing goods for which they have an absolute advantage and trade for others.

What does the production possibility frontier (PPF) illustrate?

The various combinations of amounts that two commodities could produce using the same fixed total amount of production factors.

What happens to total production when countries specialize?

Total production increases as a result of specialization and trade.

What is the outcome of Ghana trading cocoa for South Korean rice?

Ghana increases its consumption of rice while maintaining its cocoa production.

What is the significance of comparative advantage?

It explains how countries can benefit from trade even if one country has an absolute advantage in all goods.

What is the role of government in promoting national competitive advantage?

Government can play a proactive role in supporting certain industries to enhance national competitive advantage.

What is the argument for unrestricted free trade?

It is supported by economists like Smith, Ricardo, and Heckscher-Ohlin as beneficial for all nations.

What is a neo-mercantilist policy?

A policy that emphasizes government intervention to protect domestic industries and maintain trade surpluses.

What are the implications of international trade theory for management practice?

It influences how businesses strategize in the global market and navigate trade policies.

What is the theory of comparative advantage?

A theory proposing that a country should specialize in producing goods it can produce most efficiently and trade for goods it produces less efficiently.

What is the main benefit of specialization according to comparative advantage?

It causes lower opportunity costs.

What does free trade encourage?

Increased specialization and efficiency in production.

What are the resource requirements for producing 1 ton of cocoa in Ghana?

10 units of resources.

What are the resource requirements for producing 1 ton of rice in South Korea?

10 units of resources.

What is the total production of cocoa and rice in Ghana without trade?

12.5 tons of cocoa and 15 tons of rice.

What is the total production of cocoa and rice in South Korea without trade?

12.5 tons of cocoa and 12.5 tons of rice.

What happens to total production when Ghana specializes in cocoa and South Korea in rice?

Total production increases to 20 tons of cocoa and 20 tons of rice.

What is the effect of trade on consumption after Ghana trades cocoa for rice?

Ghana's consumption increases to 14 tons of cocoa and 6 tons of rice.

What are some qualifications and assumptions of the comparative advantage theory?

Assumes only two countries and two goods, zero transportation costs, and constant returns to scale.

What is the Samuelson Critique regarding free trade?

Dynamic gains from trade can lead to less beneficial outcomes for rich countries despite overall benefits.

How does free trade affect a country's stock of resources?

It might increase the stock of resources as supplies become available from abroad.

What is the Heckscher-Ohlin theory?

A theory stating that comparative advantage arises from differences in national factor endowments.

What does the Leontief Paradox illustrate?

It shows that the U.S. exports were less capital intensive than its imports, contrary to expectations based on factor endowments.

What is the relationship between trade openness and economic growth?

Countries open to trade generally have higher growth rates than those that close their economies.

What is the significance of dynamic effects in trade?

Trade can increase the efficiency of resource utilization and free up resources for other uses.

What is the primary focus of Ricardo's theory of trade?

Relative productivity in producing goods.

What is the primary focus of the Heckscher-Ohlin theory of trade?

The availability of resources such as land, labor, and capital.

What is a potential drawback of the assumptions in comparative advantage theory?

They may be unrealistic, such as assuming zero transportation costs and immobile resources.

What does the term 'diminishing returns' refer to in the context of trade?

It suggests that not all resources are of the same quality and that different goods require resources in varying proportions.

What is the implication of specialization on opportunity costs?

It lowers opportunity costs, making trade beneficial.

What is the outcome of unrestricted free trade compared to restricted trade?

Potential world production is greater with unrestricted free trade.

What role do governments play in the context of trade and worker displacement?

Governments may help retrain displaced workers to adapt to new economic activities.

What is the impact of trade on living standards?

Higher growth rates from trade can lead to increased income levels and improved living standards.

What does the Product Life Cycle Theory propose?

It suggests that as products mature, both the location of sales and optimal production location change, affecting trade flows.

Who proposed the Product Life Cycle Theory?

Vernon in the mid-1960s.

What was a significant incentive for U.S. firms in the 1960s regarding product development?

The wealth and size of the U.S. market.

How has the introduction of new products changed since the 1960s?

Many products are now introduced simultaneously in Japan, South Korea, the U.S., Europe, and Asia.

What is a key concept of New Trade Theory?

Trade can increase the variety of goods available and decrease average costs due to economies of scale.

What are economies of scale?

Unit cost reductions associated with a large scale of output.

How does trade benefit small nations?

It allows them to specialize in a narrower range of products and import goods they do not produce.

What is the significance of first-mover advantages in New Trade Theory?

Firms with first-mover advantages can develop economies of scale and create barriers to entry for other firms.

What does Porter's Diamond explain?

It explains why a nation achieves international success in a particular industry based on four attributes.

What are the four attributes of Porter's Diamond?

Factor endowments, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

What are basic factors in Porter's theory?

Natural resources, climate, location, and demographics.

What are advanced factors in Porter's theory?

Communication infrastructure, skilled labor, and technological know-how.

How does demand condition influence competitive advantage?

Sophisticated and demanding customers pressure firms to be more competitive and produce high-quality, innovative products.

What role do related and supporting industries play in national competitive advantage?

They contribute to success by creating knowledge flows and enabling investment spillovers.

What is the relationship between domestic rivalry and competitive advantage?

There is a strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage.

What is a managerial implication of international trade theory?

Location is a critical consideration in most trade theories.

How can government policy influence international trade?

Businesses can exert a strong influence on government trade policy.

What is the argument of those who support proactive government trade policies?

They believe government can promote national competitive advantage in certain industries.

What is a key difference between New Trade Theory and Heckscher-Ohlin theory?

New Trade Theory suggests nations can benefit from trade even without differing resource endowments or technology.

What is the significance of education in trade theories?

Education-related endowments like skilled labor and technological know-how are considered advanced factors for competitive advantage.

What is the implication of Porter's theory for international trade patterns?

Countries should export products from industries where the diamond is favorable and import from areas where it is not.

What does the term 'first-mover advantage' refer to?

The economic and strategic advantages that accrue to firms that are the first to enter an industry.

What is the impact of globalization on product introduction?

Firms use globally dispersed production from the start, affecting how and where products are introduced.

What is the role of chance and government in Porter's Diamond?

They can influence the national diamond and the competitive environment of local firms.

What is the importance of empirical testing in evaluating Porter's theory?

It helps validate whether the model accurately predicts international trade patterns.

What are ethics in the context of international business?

Accepted principles of right or wrong that govern the conduct of a person or organization.

What is business ethics?

Accepted principles of right or wrong governing the conduct of business people.

What is an ethical strategy?

A strategy that does not violate accepted ethical principles.

What are the most common ethical issues in international business?

Employment practices, human rights, environmental pollution, and corruption.

What ethical dilemma might arise regarding employment practices?

Deciding whether to apply home or host nation standards for work conditions.

What was the Nike case about?

It raised ethical questions regarding the use of sweatshop labor, despite not breaking the law.

What should firms do to guard against ethical abuses?

Establish minimal acceptable standards, audit foreign subsidiaries, and take corrective actions.

What are basic human rights that may not be universally accepted?

Rights such as freedom of association, speech, assembly, and political repression.

What was the Apartheid system in South Africa?

A mandated segregation that prohibited blacks from managing whites, raising ethical questions for businesses.

What are the Sullivan principles?

Guidelines aimed at promoting racial equality and human rights in business operations.

What is the Universal Declaration of Human Rights (UDHR)?

A document adopted by the UN on December 10, 1948, outlining the inherent rights of all human beings.

What is the significance of December 10?

It is recognized as International Human Rights Day and the day the Nobel Peace Prize is awarded.

What ethical issues arise from environmental pollution?

Differences in environmental regulations between host and home nations and the tragedy of the commons.

What is the tragedy of the commons?

A situation where shared resources are overused and depleted due to individual self-interest.

Is it ethical for companies to escape regulations by moving to nations with lax laws?

This raises ethical questions about corporate responsibility and environmental impact.

What is the Foreign Corrupt Practices Act (FCPA)?

A U.S. law that prohibits bribing foreign officials to secure business.

What are facilitating payments?

Payments made to expedite routine government actions, which are excluded from the FCPA.

What was the Siemens case related to FCPA?

Siemens was fined $800 million for making corrupt payments to foreign officials, totaling $1.6 billion in penalties.

Should the U.S. have jurisdiction over foreign firms under the FCPA?

This raises questions about the appropriateness of U.S. government investigations into foreign companies.

What is the role of multinational corporations in repressive regimes?

Debates whether investment can foster change or if it is unethical to do business with such regimes.

What is a moral obligation of multinational corporations?

To consider the ethical implications of their business practices on human rights and local communities.

How can managers incorporate ethical considerations into decision making?

By recognizing ethical dilemmas and applying ethical principles in their strategies.

What is corporate social responsibility (CSR)?

The practice of businesses considering their impact on society and the environment in their operations.

What is sustainability in business?

The ability to operate without depleting resources or harming the environment for future generations.

What is the relationship between ethics, CSR, and sustainability?

They are intertwined issues that influence how businesses operate in a global context.

What are some causes of unethical behavior by managers?

Pressure to meet financial targets, lack of oversight, and cultural differences in business practices.