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Questions and Answers
What is international business?
The buying, selling, and trading of goods across national borders.
What is absolute advantage?
What does outsourcing involve?
Canada has a trade surplus.
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What is a trade deficit?
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What is an exchange rate?
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Why do countries impose tariffs?
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What challenges do businesses face in understanding international laws and regulations?
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Study Notes
International Business Overview
- Involves buying, selling, and trading goods across national borders.
- Technological advancements and reduced political barriers have boosted global trade.
- Major companies like Starbucks, Amazon, and McDonald's thrive internationally, facing ethical and logistical challenges.
Why Nations Trade
- Countries trade to acquire resources unavailable or costly domestically.
- Absolute Advantage: A nation can produce a good at a lower cost than others.
- Comparative Advantage: Specialization in goods produced at a lower opportunity cost, exemplified by Canada in agriculture and India/Ireland in services.
Outsourcing
- Transferring manufacturing and tasks to countries with cheaper labor and supplies.
- Controversial due to job shifts overseas; Canada is an attractive outsourcing location for the U.S. due to proximity and cultural similarities.
Trade Between Countries
- Involves exporting and importing goods and services.
- Canada exports around $550 billion in goods and services and imports a similar volume, creating a fluctuating trade balance.
- Canada typically experiences a trade deficit, importing more than it exports.
Balance of Trade
- A trade deficit indicates the value of imports exceeds that of exports; Canada had a deficit of $375 billion in 2020.
- Trade balances reflect economic conditions, impacting business decisions and employment.
- Important trading partners include the U.S. and China, influencing Canada's trade dynamics.
- The balance of payments concept illustrates monetary flow in and out of Canada.
International Trade Barriers
Economic Barriers
- Economic development disparities exist between nations, with advanced countries showing higher living standards.
- Less Developed Countries (LDCs) often lack infrastructure, impacting citizens' living quality.
- Infrastructure includes systems essential for transportation, communication, and utilities; investments are vital for LDCs to improve.
Exchange Rates
- The exchange rate defines how one currency converts to another, crucial for international trade.
- A stronger Canadian dollar makes imports cheaper and exports pricier for foreign buyers.
- Governments may devalue currency intentionally to stimulate exports and tourism.
Ethical, Legal, and Political Barriers
Laws and Regulations
- Canada enforces laws and regulations on international trade, guided by international agreements.
- Understanding foreign laws is essential for Canadian business operations, as regulations can vary widely.
- Countries like China and Hong Kong face issues with counterfeit goods, impacting their global standing.
Tariffs and Trade Restrictions
- Import tariffs are taxes on goods from abroad, aimed at protecting domestic industries by raising imported goods' prices.
- Tariffs can serve both political and economic purposes, with recent global events like COVID-19 affecting trade relationships and tariff implementations.
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