Learn: Trade in a Global Economy
The difference between foreign direct investment (FDI) and foreign portfolio investment (FPI) is that:
FDI is investing more in fixed assets (companies and real estate), as opposed to stocks and bonds (which is portfolio investment)
What point is made about Russian food production?
Western countries have very deliberately not sanctioned Russia's food and fertilizer exports for global food security reasons
Match the IGO to its function:
MF - Lender of last resort for countries that experience significant, but generally short-term, balance of payments problems World Bank - Lender generally for longer-term development projects across the world WTO - Organization designed to foster more open international trade and settle trade disputes
On the Country Profile tab, drill down into the RCII structure under Operations and click on the "Business Transactions" sub-dimension name. What is the source of the data as noted in the definitions box?
World Bank - Doing Business
Since the 1980s, many "developing" countries have liberalized trade and investment, often because they have had to accept IMF Structural Adjustment Programs (SAPs) and open their economies. Many, however, still have considerable barriers. For example, "International Shipments Logistics" is defined as "Ease of arranging competitively priced shipments." What are the two biggest outliers in the histogram above, with the poorest international shipping logistics? Do you know anything about the challenges these countries face?
Zimbabwe, Mauritius
"Total Tax Rate (% profit)" is defined as "...the amount of taxes and mandatory contributions payable by the business in the second year of operation, expressed as a share of commercial profits." What is the U.S.'s Total Tax Rate (% profit)?
36.6%, ranked 57th in the world
Developing countries that have pursued a protectionist strategy for development have used tariffs, business regulations and licenses, quotas, and bars on some imports to protect their markets while they seek to build domestic industries. India, for example, was known as the "License Raj" for all the procedures and licenses/permits required to do business, and we see some legacies of this "License Raj" today. Using the "Business Transactions" sub-dimension under "Operations," match the data point for India to the listed variable. The map below highlights India on "Business Transactions" in the 2022 RCII.
49.7 - What is the country's "Total Tax Rate"? 10 - How many "Procedures to Start a Business" (men or women)? 1445 - How many "Days to Get a Construction Permit"? 119 - What is the country's rank on "Registering Property"? 57.93 - How many "Days to Register Property"?
MNCs build supply chains to (select all that apply, there are one to four possible correct answers):
Access foreign markets Find the most qualified and inexpensive labor Access abundant raw materials
Which two thinkers are most closely associated with setting the classical liberal roots of open markets and free trade?
Adam Smith and David Ricardo
Match the country in the right hand column with the corporation on the left whose 2022 "market value" (as reported by Forbes Magazine) is the closest to the country's "Aggregate GDP." You will need to use the "Aggregate GDP" raw data, which is easily found on the Rank by Variable or Rankings tab in the RCII, as well as elsewhere in the tool.
Canada - Microsoft ($2054.37 billions) Italy - Saudi Arabian Oil Company ($2292.08) India - Apple ($2,640.32 billions) Australia - Alphabet ($1,581.72 billions) Malaysia - Samsung ($367.26 billions) Turkey - Berkshire Hathaway ($741.48 billions) Spain - Amazon ($1,468.4 billions)
For people and countries to develop and prosper, they need:
Capital (money)
Order the following countries from the country that exports the highest volume to the country that exports the lowest volume by recreating the chart above or using "Aggregate Exports (Bil USD)" on Rank by Variable. Note the drop that came with the Covid-19 crisis and resulting supply chain issues.
China U.S. India Russia Brazil South Africa
Whirlpool claimed its foreign competitors engage in unfair competition. What are examples in the video of what "unfair competition" means (select all that apply, there are one to four possible correct answers)?
Companies getting direct funding (subsidies) from the government Companies selling their washing machines at prices lower than what they're charging for the same washing machines back home Companies selling their washing machines at prices lower than their cost of production
Infrastructure is an important part of a country being able to engage with global markets. Which Latin American country, as seen in the Country Profile Table below, is 108th (of 126) overall, 17th (of 20) in Latin America, and 38th (of 39) amongst "Emerging Markets" on "Quality of Roads"?
Costa Rica
Arguments in favor of protectionist policies include:
Countries can temporarily support the growth of infant industries to reshape their comparative advantage
what "loophole" has challenged efforts to cut off Russian oil revenues?
Crude oil has been sent by tanker to India, where it is refined and then sold internationally, particularly in European markets (bypassing sanctions)
Losing a case through the WTO disputes settlement mechanism could lead a country to face:
Economic sanctions or a withdrawal of trade concessions by the winning state
What is true about Russian oil sales during the first 100 days of the Ukrainian war (select all that apply, there are one to four possible correct answers) ?
Europe purchased 61% ($59 billion) They totaled almost $100 billion ($97 billion) Overall, exports of Russian oil and gas fell and Moscow's revenue from energy sales declined, but revenues still exceeded the cost of the Ukraine war High prices offset efforts to reduce demand for Russian oil and gas
To stabilize currencies during the initial Post WWII era, countries
Fixed (or pegged) the value of their currency to the U.S. dollar, which was fixed to the price of gold
Those that caution against free trade generally argue:
Free trade leads to competition which can cost workers their jobs
Classical liberal trade theory holds the view that:
Free trade without governmental interference will eventually benefit all economies in the international system by ensuring efficiency in the production and distribution of goods and services
The map and longitudinal chart above show that Oceania, North America, and Europe generally score well in "Customs Logistics," an important part of the trade process. (Customs Logistics is defined as "Efficiency in the clearance process--i.e., speed, simplicity, and predictability of formalities--by customs and other border control agencies"). Which country has the world's best customs logistics?
Germany
Definitions are found on the "Maps," "Country Profile," and "Rank by Variable" tabs by clicking on a variable name. Using one of these tabs, drill into "Barriers to Trade" and click on "Prevalence of Non-Tariff Barriers" (here's the path: ECONOMICS/Market Access/Trade Profile/Barriers to Trade/Prevalence of Non-Tariff Barriers). Within the definition, what are listed as Non-Tariff Barriers (NTBs)? Below is a longitudinal chart show "Prevalence of Non-Tariff Barriers" by world region. Question to ponder: what type of trade strategy would most likely use this type of trade barrier?
Health and product standards, technical and labeling requirements, etc.
Capital (select all that apply, there are one to four possible correct answers):
In the past, largely stayed at home, in domestic banks and stock markets Today crosses borders at lightning speed, with over $6 trillion traded every day Can be in the form of foreign direct investment, foreign portfolio investment, foreign aid, and remittances from migrants sending money back home Is another word for money
The WTO (select all that apply, there are one to four possible correct answers):
Is criticized on the right for its ability to impinge on the decisions of sovereign states Is criticized on the left for its alleged disregard for environmental and worker standards
Intrafirm trade:
Is when MNCs trade with their own affiliates in different countries, producing components and assembling products along their supply chain
If the war was to end today?
It would take a significant amount of time and investment to bring Ukraine to its prewar levels of agricultural productivity
With respect to the charge that LG and Samsung take advantage of unfair trade practices as far as washing machines are concerned: (select all that apply, there are one to four possible correct answers)
LG and Samsung argued they followed the rules 100%, and simply have better products than Whirlpool U.S. regulators in the Obama and Trump administrations repeatedly agreed that the companies are breaking international trade rules
which of the following is true (select all that apply, there are one to four possible correct answers)?
Russia has blocked traditional export routes out of Ukraine The war has cut Ukraine's steel production in half Iron ore and semi-finished iron are Ukraine's single largest export
Arguments in favor of free trade often include each of the following: (select all that apply, there are one to four possible correct answers)
Open trade fosters lower prices for consumers Free trade produces overall economic growth and jobs in sectors where the country has a comparative advantage Free trade promotes interdependence among countries and helps maintain international peace Everyone benefits when countries produce and sell what they do most efficiently
Neoliberal advocates of the "Washington Consensus" argue that:
Opening economies to free trade, cutting back state budgets (fiscal responsibility), and privatizing state-owned enterprises is the best strategy for the developing world
What is true about Russian oil sales during the first 100 days of the Ukrainian war (select all that apply, there are one to four possible correct answers) ?
Overall, exports of Russian oil and gas fell and Moscow's revenue from energy sales declined, but revenues still exceeded the cost of the Ukraine war Europe purchased 61% ($59 billion) They totaled almost $100 billion ($97 billion)
Using the definition for the "Logistics" sub-dimension, determine what the "Logistics" data is based on (definitions are found on the Maps, Country Profile, and Rank By Variable tabs).
Perceptive surveys of operators on the ground (global freight forwarders and express carriers)
IMF Structural Adjustment Programs (SAPs) have called for:
Privatization (sale to private owners) of state-owned enterprises (SOEs)
Which of the following is true about global markets and food (select all that apply, there are one to four possible correct answers)?
Russia's invasion and its blockade of Ukrainian ports are preventing Ukraine from exporting its grain Ukraine grows enough food to feed 400 million people Ukraine and Russia together account for one-third of the world's wheat exports
States use different types of trade strategies to try to improve economic outcomes, some are more "classic liberal," believing that freer trade will eventually benefit all economies, while others pursue more protectionist policies to try to guide the market and help local producers and populations. Recreate the bar chart of "Barriers to Trade" above and list the countries from more open (scoring highest) to more protected (scoring lowest).
Singapore Chile Ireland United States China India
Below is a map of "Current Account Balance (% GDP)," whose path is ECONOMICS/Macro-Economic Indicators/Broad Economy/Current Account Balance (% GDP). Broadly, a country's current account balance is its "net trade in goods and services" (some countries run a trade surplus; some countries run a trade deficit). Please match the country below with its current account balance as a percentage of its Gross Domestic Product. This data is easy to find on the Maps, Rank by Variable, or Rankings Tile/Tab. Question to ponder: What accounts for the big discrepancy in the current account balances (% GDP)?
Singapore - 15.878% United States - -3.47% China - 1.644% Germany - 6.798% Greece - -7.406% Netherlands - 7.899%
Countries (and people) need capital (money) to develop, and one way to bring in capital is through Foreign Direct Investment (FDI). FDI Inward Stocks (Mil USD) is defined as "The value of the capital and reserves in the economy attributable to a parent enterprise resident in a different economy, expressed in millions of U.S. dollars (Current)." The variable measures accumulated FDI in an economy. Which countries have the most accumulated capital? Match the country Rank below to the country. Do any of these surprise you?
Singapore - 5 China - 4 Ireland - 6 Netherlands - 2 United Kingdom - 3 United States - 1
To get Samsung and LG to invest in their states:
South Carolina and Tennessee offered significant investment incentives, similar to the advantages the firms received in South Korea
Under the GATT (select all that apply, there are one to four possible correct answers):
States agreed to lower their tariffs and apply the same tariff rate to all members of the GATT (known as the most-favored nation system) Countries often shifted to new steps to protect their economies, such as by using non-tariff barriers Average global tariffs were lowered from 22% to 5% over roughly 50 years
The idea of comparative advantage is that:
States should specialize in producing the goods which they produce most efficiently and trade for goods that other states produce most efficiently
Through _________________, the IMF and World Bank set a series of often stiff requirements when establishing an agreement with a borrowing country, pressing such steps as trade liberalization, fiscal responsibility, and privatization.
Structural Adjustment Programs
Generally, the United States does very well in the "Operations" macro-dimension, ranking 7th (scoring 914) in the 2022 RCII. However, there are individual variables where the country ranks somewhat lower. Recreate the drill down table above using the Country Profile tab to answer the following question: What is the variable blocked out in which the U.S. ranks 115th? Food for thought: Why do you think the U.S. still scores 961 out of 1000?
Terrorism Incidence
The value of a country's currency can have a significant impact on economic outcomes. For example, an overvalued currency will strengthen the ability to purchase imports, while an undervalued currency will allow a country to sell exports at lower prices. The RCII's Currency Over/Under Valuation variable is based on the Economist Magazine's "Big Mac" Index, which compares the price of a Big Mac around the world to assess currency over/under valuations and how close a country is to its accurate valuation. Use the chart above of the U.S. and China on Currency Over/Under Valuation. Which of the following is true:
The Chinese currency is now slightly closer to it's accurate valuation than the U.S. currency, but the U.S. had been closer until 2016
The creation of the WTO in 1995 included:
The creation of a trade dispute settlement mechanism with teeth, to resolve trade disputes amongst members
Floating exchange rates, which much of the world shifted to after 1971, differ from fixed exchange rates in that with floating exchange rates:
The market determines the price of the currency
As a result of the trade conflict over washing machines:
The price of both foreign and domestically produced washers went up
iRonh of the following is true
The war has cut Ukraine's steel production in half Russia has blocked traditional export routes out of Ukraine Iron ore and semi-finished iron are Ukraine's single largest export
Why is trade policy "inevitably politicized"?
There are winners and losers with trade policies, and groups pressure governments to adopt policies beneficial to them
What steps have the Russians taken with respect to food production in Ukraine (select all that apply, there are one to four possible correct answers)
They have fired at farmers and tractors They have shelled farms with high-explosive projectiles, leaving piglets and calves screaming as they were roasted alive They have targeted agricultural infrastructure in their attacks, including silos and the railroad bridges Ukraine needs to export They have stolen Ukrainian crops
Because Samsung and LG faced retaliatory tariffs placed on them by U.S. regulators:
They moved some production to China (and later Thailand, Vietnam, and the U.S.), which didn't face the tariffs placed on South Korea
What is true about Russian oil sales during the first 100 days of the Ukrainian war (select all that apply, there are one to four possible correct answers) ?
They totaled almost $100 billion ($97 billion) High prices offset efforts to reduce demand for Russian oil and gas Europe purchased 61% ($59 billion) Overall, exports of Russian oil and gas fell and Moscow's revenue from energy sales declined, but revenues still exceeded the cost of the Ukraine war
The Bretton Woods institutions were created after WWII:
To promote stability in international economics and, hence, strengthen international peace
Proponents of free trade argue:
Trade increases overall employment and growth, and can shift jobs to where a country has comparative advantages
The removal or reduction of tariffs or quotas on the trading of specific goods to stimulate freer trade is known as:
Trade liberalization
In recent years, a few countries, claiming to pursue socialist strategies because of the exploitative nature of capitalism, have made it exceedingly difficult for businesses to operate in their country. Other countries have pursued a strategy, often called democratic socialism, which includes significant government involvement in the economy, but also significant business competition. Which country in the radar chart above stands out as the worst in the world on each of the variables identified, and which country stands out for its ease of doing business?
Venezuela, Denmark
Because of the tariffs placed on imported steel, aluminum, and other products by the Trump administration, the video points to which specific product the Canadians and Europeans targeted for retaliation?
Washing machines
Using the longitudinal charting function on the RCII's Charts tab, create a chart of the United States Rank with the variables Total Trade (% of GDP) and Aggregate Total Trade (Bil USD). Which chart below reflects the large discrepancy between the United States Rank on these two variables? And here's a couple questions for you to ponder: Why does this discrepancy exist? And why is it important?
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