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Questions and Answers
What is the primary benefit of international trade for countries?
What is the primary benefit of international trade for countries?
What indicates a country has a trade surplus?
What indicates a country has a trade surplus?
Which agreement replaced NAFTA and took effect on July 1, 2020?
Which agreement replaced NAFTA and took effect on July 1, 2020?
What is a provision of the USMCA regarding the automotive industry?
What is a provision of the USMCA regarding the automotive industry?
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What was a notable feature of the USMCA related to labor rights in Mexico?
What was a notable feature of the USMCA related to labor rights in Mexico?
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What was one of the main causes of the financial crisis related to China and the Middle East?
What was one of the main causes of the financial crisis related to China and the Middle East?
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What is the primary goal of Quantitative Easing (QE) programs?
What is the primary goal of Quantitative Easing (QE) programs?
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What characteristic defines a Common Market?
What characteristic defines a Common Market?
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What effect did the COVID-19 crisis primarily have on global economies?
What effect did the COVID-19 crisis primarily have on global economies?
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Which of the following is a disadvantage of economic integration?
Which of the following is a disadvantage of economic integration?
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What does a Customs Union refer to in terms of trade agreements?
What does a Customs Union refer to in terms of trade agreements?
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Which of the following is NOT a feature of an Economic Union?
Which of the following is NOT a feature of an Economic Union?
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What does trade diversion refer to in the context of economic integration?
What does trade diversion refer to in the context of economic integration?
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What is the main purpose of tariffs in international trade?
What is the main purpose of tariffs in international trade?
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Which of the following is an example of a voluntary export restriction (VER)?
Which of the following is an example of a voluntary export restriction (VER)?
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What does the term 'Thucydides Trap' refer to in the context of international relations?
What does the term 'Thucydides Trap' refer to in the context of international relations?
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How does an import tariff calculated on an ad valorem basis differ from a specific tariff?
How does an import tariff calculated on an ad valorem basis differ from a specific tariff?
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What is the effect of imposing quotas on imports?
What is the effect of imposing quotas on imports?
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What characteristic distinguishes an absolute quota from other types of quotas?
What characteristic distinguishes an absolute quota from other types of quotas?
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What is the main objective of the Chips Act passed in 2022?
What is the main objective of the Chips Act passed in 2022?
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Which of the following best describes protectionism in international trade?
Which of the following best describes protectionism in international trade?
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Which of the following actions by the US government could be considered a protectionist measure?
Which of the following actions by the US government could be considered a protectionist measure?
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Exchange controls are primarily used by governments to:
Exchange controls are primarily used by governments to:
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Which organization was formed in 1944 to aid countries suffering from war destruction?
Which organization was formed in 1944 to aid countries suffering from war destruction?
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What significant impact do uncontrollable economic variables have on global marketers?
What significant impact do uncontrollable economic variables have on global marketers?
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How does inflation primarily affect the economy?
How does inflation primarily affect the economy?
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Which of the following is NOT a factor that firms should examine when entering foreign markets?
Which of the following is NOT a factor that firms should examine when entering foreign markets?
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What is a significant characteristic of countries with low per capita income but large populations?
What is a significant characteristic of countries with low per capita income but large populations?
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Which statement best describes the role of the International Monetary Fund (IMF)?
Which statement best describes the role of the International Monetary Fund (IMF)?
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What is a common argument against BOP (Bottom of the Pyramid) marketing?
What is a common argument against BOP (Bottom of the Pyramid) marketing?
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Which factor influences demand for imported goods due to its impact on financial transactions?
Which factor influences demand for imported goods due to its impact on financial transactions?
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How did the Great Recession primarily manifest in the economy?
How did the Great Recession primarily manifest in the economy?
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What impact did the Great Recession have on employment rates?
What impact did the Great Recession have on employment rates?
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Which of the following factors can indicate market potential in foreign countries?
Which of the following factors can indicate market potential in foreign countries?
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What economic condition typically leads governments to stimulate their economies?
What economic condition typically leads governments to stimulate their economies?
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Which country faced a 'pots and pans revolt' during an economic crisis?
Which country faced a 'pots and pans revolt' during an economic crisis?
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What is the main consequence of a weak currency on imports?
What is the main consequence of a weak currency on imports?
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What is the main purpose of the Infant Industry Argument?
What is the main purpose of the Infant Industry Argument?
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Which argument views the protection of domestic industries through the lens of employment levels?
Which argument views the protection of domestic industries through the lens of employment levels?
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What is one of the implications of the Keiretsu system in Japan?
What is one of the implications of the Keiretsu system in Japan?
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What is a consequence of a lack of IP protection in a country?
What is a consequence of a lack of IP protection in a country?
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Which of the following trade theories emphasizes the importance of a country's factor endowment?
Which of the following trade theories emphasizes the importance of a country's factor endowment?
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What primary role does the World Trade Organization (WTO) serve?
What primary role does the World Trade Organization (WTO) serve?
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Which stage in Vernon's Product Life Cycle indicates that a product is now produced in developing countries?
Which stage in Vernon's Product Life Cycle indicates that a product is now produced in developing countries?
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What does the National Security Argument justify in terms of trade?
What does the National Security Argument justify in terms of trade?
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What does Comparative Advantage suggest about countries producing specific products?
What does Comparative Advantage suggest about countries producing specific products?
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What is a characteristic of investment barriers imposed by governments?
What is a characteristic of investment barriers imposed by governments?
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Study Notes
International Trade
- Importance: International trade allows countries to specialize in producing goods where they have a competitive advantage, boosting efficiency and productivity, driving economic growth, and providing consumers with a wider variety of products. It also generates revenue for governments.
- Exports vs. Imports: Exports are goods produced domestically and sold abroad, while imports are foreign-made goods sold domestically. The difference (exports – imports) determines a country’s trade balance (surplus or deficit).
- USMCA (United States-Mexico-Canada Agreement): Replaced NAFTA, signed in 2018 and came into effect in 2020. It gives the US access to the Canadian dairy market without dismantling supply management and provides tariff-free access to 4% of the market. Also includes provisions for car and truck manufacturing & protection of Mexican workers.
- US-China Trade War: The US and China are engaged in a trade war, originating from China's alleged violation of WTO rules (forcing US companies to relinquish intellectual property) and imposition of high tariffs.
USMCA Provisions
- Dairy Market Access: USMCA allows greater US access to the Canadian dairy market, but maintains the current supply management system.
- Tariffs (Autos): Zero tariffs apply to cars and trucks with at least 75% of parts from the US, Canada, or Mexico, with 30% of the work performed by workers earning at least $16 USD/hour.
- Mexican Workers' Rights: The agreement protects Mexican workers' rights, including the right to unionize.
- Non-Market Economy Clause: Rules exist for the negotiation of trade deals with countries that are considered non-market economies. This allows for review of proposed deals.
China and the US
- Intellectual Property Theft: The US accuses China of intellectual property theft, forcing some US companies to have Chinese partners.
- Market Access: US companies face restrictions in accessing the Chinese market.
- US Protectionist Measures: Despite claiming an emphasis on US manufacturing and technology, the US hasn't removed tariffs or significantly softened its stance on bringing manufacturing back.
- Chips Act (2022): The Chips Act aims to boost US semiconductor manufacturing and restrict investments in certain countries, including China.
Thucydides Trap
- Relationship between Rising and Established Powers: Analysis by Graham Allison demonstrates a historical correlation between rising and established powers frequently leading to military conflict.
Governance of International Trade
- National Governments: Responsible for domestic trade policies, monitoring imports/exports, and implementing protectionist measures.
- Transnational Institutions: Involved in international trade, like the WTO, World Bank, and IMF.
- Protectionism: Measures taken to restrict trade, often justified by national interests – such as national security, protecting domestic industries, and consumer safety. Examples include tariffs, quotas, voluntary export restraints, product standards, investment restrictions, and intellectual property laws.
Protectionist measures
- Tariffs: Taxes on imported products (ad valorem, specific, or compounded)
- Quotas: Quantitative limits on imports.
- VERs (Voluntary Export Restraints): Self-imposed export limits by one country.
- Quality Standards: Imposed on foreign goods to protect health and safety of citizens
- IP Protection: Disincentivizing imports by lack of IP protections.
- Investment Restrictions: Restricting foreign ownership in some sectors.
Exchange Controls and Distribution
- Exchange Controls: Limiting foreign currency purchases by importers to impede transactions with exporters.
- Restricted Access: Governments might prevent foreign firms from accessing normal distribution channels. An example is Japan's Keiretsu distribution system.
Product Standards
- Product Standards: Governments enforce quality and testing standards on foreign goods.
Arguments for Protectionism
- Infant Industry Argument: Protecting new domestic industries to allow them to develop and compete against established foreign competitors.
- Employment Argument: Protecting domestic industries to maintain employment levels.
- National Security Argument: Restricting trade based on national security concerns.
Arguments for Free Trade
- Comparative Advantage: Specialization in products with a comparative advantage benefits all trading countries.
- Positive-Sum Game: Trade benefits all participating countries.
Trade Theories - Heckscher-Ohlin
- Factor Endowment: Countries export products using abundant factors of production and import those using scarce factors.
- Factor Intensities: Products require different factor intensitiies.
Product Life Cycle (Vernon)
- Stages: Products transition from being produced solely in developed countries to being produced in developing countries.
Trade Organizations
- WTO: Successor to GATT, promotes international trade by setting rules and settling disputes.
- World Bank: Aids countries recovering from war or natural disasters by improving economic and trade infrastructure.
- IMF: Maintains global monetary stability through policy advice and financing for countries experiencing financial / economic hardship
Economic Environment
- Uncontrollable Variables: Factors like interest rates, exchange rates, and inflation impact a country's market and attractiveness to investors.
- Market Selection, Strategy, and Resource Allocation: Firms must consider these economic factors when choosing target markets, formulating local marketing plans and allocating resources.
Factors to Examine
- Market Size: Population size influences demand for imported products.
- Income Levels: Purchasing power (GNI) is key to evaluating market potential for various goods/services. Income distribution is important.
- Exchange Rates: Stronger/weaker currencies affect import demand and export prices.
- Inflation: High inflation reduces purchasing power and impacts market attractiveness.
BOP Marketing
- Bottom of the Pyramid (BOP) Markets: Marketing to low-income consumers, recognizing their combined purchasing power.
- Counterarguments: Concerns about the accuracy of market size estimates and the challenges in reaching and satisfying these market segments' needs.
Economic Crises
- Great Recession and COVID-19: Both highlighted the impacts of international economic interdependence and challenged firms' strategies worldwide.
Economic Integration
- Forms: Examples include free trade areas, customs unions, common markets, and economic unions.
- Benefits: Trade creation, greater consensus, and political cooperation.
- Disadvantages: Trade diversion, loss of national sovereignty, and potential relocation of production to lower-cost regions within the integrated bloc.
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Description
Explore the key concepts of international trade, including its importance, the dynamics of exports and imports, and the impact of agreements like USMCA. Understand recent developments such as the US-China trade war and its implications on global economics.
