International Trade Concepts

Importing and Exporting

• Importing: Buying goods from other countries.
• Exporting: Selling goods to other countries.
• Free Trade: Unrestricted exchange of goods and services between countries.
• Benefits of Free Trade: Increased production, lower prices, economic growth, and wider availability of goods.
• Drawbacks of Free Trade: Job losses in some sectors, reduced competitiveness for some domestic companies, and pressure to lower domestic prices.

Comparative and Absolute Advantage

• Comparative Advantage: A nation should specialize in producing and exporting goods it produces most efficiently, and import goods it can't produce as efficiently.
• Absolute Advantage: A nation has a monopoly or produces a given product more efficiently than all other nations.

Balance of Trade (BOT) and Balance of Payments (BOP)

• Balance of Trade (BOT): The difference between a country's exports and imports over a period of time.
  • Trade Surplus: Exports exceed imports.
  • Trade Deficit: Imports exceed exports.
• Balance of Payments (BOP): The difference between a country's money received from exports and money paid for imports.

Unfair Trade Practices

• Dumping: Selling goods in another country at a price lower than the cost of production.

Entering the Global Market

• Licensing: Granting permission to another company to use a brand or intellectual property in exchange for payment.
• Franchising: Allowing another company to operate using a brand and business model. More control is maintained by the original company compared to licensing.
• Export Assistance Centers (EAC): Support for small/medium businesses to export their products directly.
• Export Trading Companies (ETC): Facilitate indirect exports for businesses.
• Contract Manufacturing: Hiring a factory in another country to produce goods for your own brand.
• Joint Ventures: Collaboration between two or more companies for a project. Benefits include shared knowledge, resources, and risk.
• Strategic Alliances: Long-term partnerships to share resources (capital, technology) and reduce certain risks for mutual benefit.
• Foreign Direct Investment (FDI): Investing in a permanent business presence in foreign countries.
• Foreign Subsidiary: A business that's part of a larger company (the parent company) but located in another country.
• Multinational Corporations (MNCs): Corporations operating in multiple countries.
• Sovereign Wealth Funds: Investments controlled by a government for investment in foreign companies.

Forces Affecting Global Trade

• Cultural Forces: Language and religious differences can affect trade.
• Exchange Rates: Value of one currency compared to another.
  • Devaluation: A deliberate lowering of currency value.
• Countertrading: Trading goods or services for goods or services rather than using money.
• Legal Forces: Differences in laws and regulations across countries.
• Environmental Forces: Issues, such as environmental regulations and difficulties with international shipping.
• Trade Protectionism: Government restrictions on imports to benefit domestic industries.
  • Tariffs: Taxes on imported goods.
  • Import Quotas: Limits on the quantity of imported goods.
  • Embargoes: Complete ban on import or export of certain goods.
• Gatt (General Agreement on Tariffs and Trade): A predecessor to the WTO that worked reducing restrictions on imports and exports.
• Common Market: A regional group of countries with free trade and common economic rules.