CH 2: DYNAMIC ENVIRONMENT OF INTERNATIONAL TRADE Flashcards
Major issue confronting I.M?
Barriers to trade and tariffs
Biggest victory for for free trade in History?
WTO (World Trade Organization)
GATT (General Agreement on Tariffs and Trade)
negotiate a reduction of tariffs and other barriers to trade
What were the issues MNC’s were facing in the 1960s?
resistance in direct investment
increased competition in export markets
NICs (Newly Industrialized countries)
Brazil
Mexico
South Korea
Taiwan
Singapore
Hong Kong
SEOs (State-owned Enterprises)
Venezuela
chile
Bangladesh
Balance of Payments
system of accounts that records a nation’s international financial transactions
Plus side of of balance of payments
merchandise export sales
money spent by foreign tourists
payments to U.S for insurance
payments of dividends
return on capital invested abroad
new foreign investments in U.S
Foreign gov’t payments to U.S
Minus side of balance of payments
COGS imported
spending of tourists overseas
new overseas investment
cost of foreign military and economic aid
current account
Record of all merchandise exports, imports, and services plus unilateral transfers of funds
capital account
record of direct investment, portfolio investment, short-term capital movements
Reserves account
record of exports and imports of gold
increase/decrease in foreign exchange
increase/decrease in liabilities to foreign central banks
Which account is primary to international business?
Current
Importance of current account
Includes all international merchandise trade and service accounts
Protectionism
use by nations of legal, exchange, and psychological barriers to restrain entry of goods from other countries
Reasons to restrict trade by protectionists:
1) Protection of infant industry
2) protection of home market
3) need to keep money at home
4) encourage capital accumulation
5) maintenance of standard living and real wages
6) conservation of natural resources
7) industrialization of low-wage nation
8) maintenance of employment and reduction of unemployment
9) national defense
10) enhancement of business size
11) retaliation and bargaining
does protectionism lead to renewed growth in a declining industry?
No, although it is politically popular
Non-tariff barriers
quotas
boycotts
monetary barriers
market barriers
imposed against imports and against foreign businesses
Tariff
tax imposed by gov’t on goods entering borders
Ad Valorem duties
based on % of determined value of imported goods
specific duties
stipulated amount/weight
compound duty
combines both specific and ad valorem taxes on an item
Tariffs increase
inflationary pressure
Special interests privileges
gov’t control + political considerations in economic matters
number of tariffs
Tariffs weaken
Balance of payments positions
Supply-and-demand patterns
international relations (can start trade wars)
Tariffs Restrict
Manufacturers supply sources
Choices available to consumers
Competition
Quota
specific unit/dollar limit applied to a particular type of good
Voluntary export restraints (VERs)
or
Orderly market agreements (OMAs)
agreement between export and import country for a restriction on volume of exports
Boycott
absolute restriction against the purchase and importation of certain goods/services from other countries
Embargo
refusal to sell to a specific country
Blocked currency
political weapon or response to a difficult balance-of-payments situation
all imports and exports are blocked
gov’t approval
secure foreign exchange by countries experiencing severe shortages of foreign exchange
Standards (nontariff barrier)
protect health, safety, and product quality
Antidumping penalty
prevent predatory pricing
Predatory pricing
practice where a foreign producer sells its products in the U.S for less than the cost of production to undermine competition and take control of the market
Omnibus Trade and Competitiveness Act of 1988
deal with trade deficits, protectionism, and overall fairness
GATT Agreement
1) trade is non-discriminatory
2) protection through custom tariffs for domestic industries, not import quotas
3) consultation is primary method for trade problems
World Trade Organization (WTO)
Encourages current GATT structure. Is an institution, not an agreement like GATT
International Monetary Fund (IMF)
Global institution, along with World Bank Group, to assist nations in becoming and remaining economically viable
World Bank Group 5 institutions
1) lend money to gov’t of developing countries in education, health, and infrastructure
2) assistance to gov’t for development projects in the poorest countries
3) lend directly to strengthen the private sector with long-term loans, equity investments
4) noncommercial risk (exportation and war). help attract foreign investment
5) promote increased flows of investment
Which of the following was the main objective behind the United States’ efforts to improve world trade by fostering economic growth in Europe and the underdeveloped world just after World War II?
a.
Creating a trade bloc to counter the OPEC countries’ clout
b.
Gaining access to the European market
c.
Halting the growth of Nazi Germany
d.
Dampening the spread of communism
e.
Dissolving the colonial powers
d.
Dampening the spread of communism
_____ refers to the system of accounts that records a nation’s international financial transactions.
a.
Exchange rate
b.
National accounts system
c.
Trade balance
d.
EX-IM (exports-imports) account
e.
Balance of payments
e.
Balance of payments
Which of the following is most likely to be recorded on the minus side of the U.S. balance of payments?
a.
New overseas investments
b.
Return on capital invested abroad
c.
Money spent by foreign tourists
d.
Merchandise export sales
e.
Transportation
a.
New overseas investments
Which of the following would be the balance-of-payments account that records all merchandise exports, imports, and services plus unilateral transfers of funds?
a.
Reserves account
b.
Credit account
c.
Capital account
d.
Current account
e.
Receivables account
d.
Current account
A(n) _____ is a tax imposed by a government on goods entering at its borders.
a.
predatory price
b.
boycott
c.
standard
d.
embargo
e.
tariff
e.
tariff
In general, tariffs restrict:
a.
government control in economic matters.
b.
manufacturers’ supply sources.
c.
special interests’ privileges.
d.
quotas.
e.
inflationary pressures.
b.
manufacturers’ supply sources.
Exporting countries agree to voluntary export restraints (VERs) generally as an alternative to the threat of:
a.
disorderly marketing agreements.
b.
stiffer quotas and tariffs.
c.
export subsidies.
d.
expulsion.
e.
standardization disparities.
b.
stiffer quotas and tariffs.
Which of the following barriers require the importers who want to buy a foreign good to apply for an exchange permit?
a.
Import quota
b.
Special supplementary duties
c.
Blocked currency
d.
Prior import deposit requirements
e.
Government approval
e.
Government approval
_____ is the practice whereby a foreign producer intentionally sells its products in a market for less than the cost of production to undermine the competition and take control of the market.
a.
Predatory pricing
b.
Defensive pricing
c.
Offensive pricing
d.
Basing point pricing
e.
Counterpoint pricing
a.
Predatory pricing
In which of the following rounds of intergovernmental tariff negotiations was the World Trade Organization created?
a.
Kennedy Round (1964)
b.
Doha Round (2001)
c.
Geneva Round (1947)
d.
Uruguay Round (1994)
e.
Tokyo Round (1974)
d.
Uruguay Round (1994)
