Business in a Global Economy - Section 10.1: The Global Marketplace

Globalization and International Trade

  • Global economy: Interconnected economies of the world fueled by international trade.
  • Globalization: Development of the global economy.
  • International trade: Exchange of goods/services between nations.
  • Multinational corporation: Company operating in many countries with facilities worldwide (e.g., Sony).

Types of Trade

  • Domestic trade: Trade within a country.
  • World trade: Exchange across international borders.
  • Imports: Goods/services bought from another country.
  • Exports: Goods/services sold to another country.
  • Balance of trade: Difference between a country’s imports and exports.
    • Trade surplus: Exports exceed imports.
    • Trade deficit: Imports exceed exports.

Specialization and Comparative Advantage

  • Specialization: Focusing on a particular activity or product.
  • Comparative advantage: Ability to produce goods more efficiently than another country.

Currency and Exchange Rates

  • Businesses convert currency to trade internationally on the foreign exchange market.
  • Exchange rate: Price of one currency in terms of another; fluctuates daily.
  • Appreciated exchange rate: Allows a country to buy more products from another country.

Protectionism

  • Protectionism: Government limits on foreign trade to protect domestic businesses.
  • Reasons for restricting trade:
    • Protect from foreign competition.
    • Protect industries related to national defense.
    • Concerns over labor costs and environmental/human rights standards.
  • Trade barriers:
    • Tariff: Tax on imports.
    • Quota: Limit on imported quantities.
    • Embargo: Ban on imports/exports.

Free Trade

  • Free trade: Few or no limits on trade between countries.
  • Benefits:
    • Opens new markets, creates jobs.
    • Increases efficiency and productivity through competition.
    • Provides more consumer choices.
    • Promotes cultural understanding and cooperation.
    • Raises the standard of living.

Trade Alliances

  • Nations form trade alliances to reduce trade limits.
    • NAFTA (North American Free Trade Agreement): United States, Canada, Mexico.
    • European Union (EU).
    • Association of Southeast Asian Nations (ASEAN).