Bus 101 - CH 3

embargo

A complete ban against importing or exporting a product

absolute advantage

A country has an absolute advantage when it can produce and sell a product at a lower cost than any other country or when it is the only country that can provide a product. The United States, for example, has an absolute advantage in reusable spacecraft and other high-tech items.

a preferential tariff

A tariff that is lower for some nations than for others

predatory dumping

the attempt to gain control of a foreign market by destroying competitors with impossibly low prices

principle of comparative advantage

each country should specialize in the products that it can produce most readily and cheaply and trade those products for goods that foreign countries can produce most readily and cheaply. This specialization ensures greater product availability and lower prices.

a free-trade zone

few duties or rules restrict trade among the partners, but nations outside the zone must pay the tariffs set by the individual members.

contract manufacturing

foreign firm manufactures private-label goods under a domestic firm's brand. (. Levi Strauss, for instance, entered into an agreement with the French fashion house of Cacharel to produce a new Levi's line, Something New, for distribution in Germany.)

exchange rate

is the price of one country's currency in terms of another country's currency; the value of a currency in one country compared with the value in another

expropriate

usually a government, taking ownership and compensating the former owners

International Monetary Fund (IMF)

was founded in 1945, one year after the creation of the World Bank, to promote trade through financial cooperation and eliminate trade barriers in the process. The IMF makes short-term loans to member nations that are unable to meet their budgetary expenses. It operates as a lender of last resort for troubled nations.

Mercosur

The largest new trade agreement is Mercosur, which includes Peru, Brazil, Argentina, Uruguay, and Paraguay.

Market expansion

The need for businesses to expand their markets is perhaps the most fundamental reason for the growth in world trade; A strategy whose goal is growth, based on selling in areas or to groups previously not served by the business.

Central America Free Trade Agreement

The newest free trade agreement is the Central America Free Trade Agreement (CAFTA) passed in 2005. Besides the United States, the agreement includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

multinational corporations

Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located

imports

goods and services that are bought from other countries

confiscation

government taking ownership; the owner receives no compensation

tariff

is a tax imposed by a nation on imported goods. It may be a charge per unit, such as per barrel of oil or per new car; it may be a percentage of the value of the goods, such as 5 percent of a $500,000 shipment of shoes; or it may be a combination. No matter how it is assessed, any tariff makes imported goods more costly, so they are less able to compete with domestic products.

. Free trade

is the policy of permitting the people and businesses of a country to buy and sell where they please without restrictions

Dumping

is the practice of charging a lower price for a product (perhaps below cost) in foreign markets than in the firm's home market.

Gross National Income

is the value of the final goods and services produced by a country (Gross Domestic Product) together with its income received from other countries (such as interest and dividends) less similar payments made to other countries.

Nationalism

the sense of national consciousness that boosts the culture and interests of one country over those of all other countries

Resource Acquisition

More and more companies are going to the global marketplace to acquire the resources they need to operate efficiently. These resources may be cheap or skilled labor, scarce raw materials, technology, or capital

appreciation

. If a country's currency appreciates, less of that country's currency is needed to buy another country's currency

trade surplus

A country that exports more than it imports is said to have a favorable balance of trade, called a trade surplus.

trade deficit

A country that imports more than it exports is said to have an unfavorable balance of trade, or a trade deficit

direct foreign investment

Active ownership of a foreign company or of overseas manufacturing or marketing facilities

North American Free Trade Agreement (NAFTA)

Agreement that created a free-trade area among the United States, Canada, and Mexico.

floating exchange rates

a currency markets system in which prices of different currencies move up and down "float" based on the demand for and the supply of each currency

devaluation

a nation lowers the value of its currency relative to other currencies. This makes that country's exports cheaper and should, in turn, help the balance of payments.

protectionism

a nation protects its home industries from outside competition by establishing artificial barriers such as tariffs and quotas

European integration

a process of gradual pooling of sovereignty from member states to common institutions at the EU level

balance of payments

a summary of a country's international financial transactions showing the difference between the country's total payments to and its total receipts from other countries. The balance of payments includes imports and exports (balance of trade), long-term investments in overseas plants and equipment, government loans to and from other countries, gifts

Uruguay Round

a trade agreement to dramatically lower trade barriers worldwide; created the World Trade Organization

World Bank

an international bank that offers low-interest loans, advice, and information to developing nations

exports

are goods and services made in one country and sold to others

Exchange controls

are laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, usually a central bank

Final goods

are the goods ultimately consumed rather than used in the production of another good. For example, a car sold to a consumer is a final good; the components, such as tires sold to the car manufacturer, are not. They are intermediate goods used to make the final good. The same tires, if sold to a consumer, would be a final good.

Licensing

is the legal process whereby a firm (the licensor) agrees to let another firm (the licensee) use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge. The licensee, in turn, agrees to pay the licensor a royalty or fee agreed on by both parties.

import quota

limits on the quantity of a certain good that can be imported

Protective tariffs

make imported products less attractive to buyers than domestic products;

advantage

nations—like people—are good at producing different things; Economists refer to specialization like this as

exporting

selling domestically produced products to buyers in another country

Infrastructure

the basic physical and organizational structures and facilities (e.g., buildings, roads, and power supplies) needed for the operation of a society or enterprise; is the basic institutions and public facilities upon which an economy's development depends.

balance of trade

the difference between the value of a country's exports and the value of its imports during a specific time

joint venture

the domestic firm buys part of a foreign company or joins with a foreign company to create a new entity. A joint venture is a quick and relatively inexpensive way to enter the global market. It can also be very risky

buy-national regulations

Government rules that give special privileges to domestic manufacturers and retailers; . One such regulation in the United States bans the use of foreign steel in constructing U.S. highways

depreciation

If a country's currency depreciates, more of that currency will be needed to buy another country's currency.;

The European Union

International organization comprised of Western European countries to promote free trade among members. 28 members

outsourcing

Sending domestic jobs to another country

World Trade Organization (WTO)

a trade organization that replaced the old General Agreement on Tariffs and Trade (GATT); The WTO also has an effective dispute settlement procedure with strict time limits to resolve disputes.

countertrade

part or all of the payment for goods or services is in the form of other goods or services. Countertrade is a form of barter (swapping goods for goods), an age-old practice whose origins have been traced back to cave dwellers

global vision

recognizing and reacting to international business opportunities, being aware of threats from foreign competitors in all markets, and effectively using international distribution networks to obtain raw materials and move finished products to the customer.

global

referring to a boundless mobility and competition in social, business, and intellectual arenas