Chapter 5 Flashcards
What is the total volume of world trade in dollars?
Approx 19 trillion $/year
Define globalization
Integration of markets globally
What type of system is the world becoming
Single interdependent
Define imports
Products bought from manufacturers based in other countries to be sold in Canada
Define exports
Products made in Canada bought by consumers in other countries
What are the major world marketplaces?
North America (USA, Canada, Mexico), Europe, Pacific/Asia (Japan, China, India)
Who is Canada’s largest trading partner?
USA
What are the two views in the Europe marktetplace?
Traditional (west vs east) and emerging (north vs south)
What are other important and emerging markets? (4)
South Korea, Thailand, Indonesia, Ukraine
What is BRICS?
Brazil, Russia, India, China, South Africa (trading partners)
Define absolute advantage
Country producing something more efficiently than any other country
Define comparative advantage
Country producing specific item more efficiently (cheaper) than other items it produces
What does the Theory of National Competitive Advantage focus on (7)
Factor conditions; demand conditions; related and supporting industries; strategies, structure, rivalries
Define balance of trade
Difference in value between total exports and total imports
Define trade surplus
Nation exports more than it imports
Define trade deficit
Nation imports more than it exports
Define balance of payments
Flow of money in/out of country
What brings cash flow in?
Exports; foreign tourist spending in the country; foreign investments in the country; earnings from investments outside of the country
What brings cash flow out?
Imports; country citizens spending more overseas (tourists); foreign aid grants; military spending abroad; country investing abroad; earnings from foreign investments in the country
Define foreign exchange rate
Ratio of one currency to another
Define a “strong” dollar
High demand for both $$ and products
When does the value of the dollar depreciate?
Exports increase while imports cost more
When does the value of the dollar appreciate?
Exports decrease while imports cost less
What questions should be asked to determine if an enterprise should go international? (4)
- Is there international demand?
- Can product be modified to fit foreign market?
- Is foreign business climate suited to imports?
- Does firm have/can get necessary skills and knowledge to do business?
Define an exporter
Making products in one country and selling to others
Define an importer
Buying products in foreign markets to resell in home country
Define an international firm
Conducting most business abroad (domestic firm with international operations)
Define a multinational firm
Controlling assets, factories, mines, sales offices, affiliates in 2+ foreign countries; planning, decision making geared towards international markets
What is the international organization structure? (5)
Importing/exporting via independent agent -> licensing arrangement -> establishing branch office -> choosing strategic alliance -> foreign direct investment
Why have an independent agent?
Local indiv./org. representing exporter’s interests; often selling products, collecting payments, ensuring customer satisfaction; understands language, culture, market
Why create a licensing arrangement?
Exporter gives a foreign company the exclusive right to manufacture or sell its product for a royalty or fee; franchising is a special form of a licensing arrangement
Why build a branch office? (4)
Established in foreign country
Increased sales due to local presence
More direct control
May be a foreign legal requirement
Why form a strategic alliance (3)
May be mandated in some nations
Get knowledge and expertise of the foreign partner
Greater control
Why choose FDI
Companies buy or establish tangible assets in a foreign country (location benefits)
Brings foreign investment to local economy
Provides local employment
What are the barriers to international trade?
Social and cultural differences
Economic differences
Legal and Political Differences
What are examples of social, cultural differences? (5)
Language
Population demographics
Religious differences
Social beliefs
Shopping habits
What are examples of economic differences? (5)
the role of government in the economy
planned vs. market economies
capitalist
socialist
communist
What are legal and political differences? (6)
Quotas, tarrifs, subsidy, protectionism, local content laws, business practices
Define quotas
limitations on importation of a product class
embargo-forbidding export/import from a nation
United States v s. Cuba
Define tarrifs
a tax on imported goods
raises government revenues as well
Define subsidy
government financial assistance for domestic firms
Define protectionism
protects local business at the expense of free market competition
Define local content laws
requires that at least part of the product be made in the foreign country (possible joint venture)
Define business practices (3)
Bribes
Dumping
Cartels
Define bribes
seen as “gratuities” to officials in some nations
Define dumping
selling goods abroad for less than a firm charges at home; illegal in most nations
Define cartels
associations of producers created to control supply and demand (e.g., O P E C)
Define GATT
General Agreement on Tarrifs and Trades
Define WTO
World Trade Org; 153 member nations, negotiate trade agreements, resolve trade disputes
Define EU
European Union; largest free marketplace in the world, 27 countries, Brexit (UK left in 2020), eliminates quotas, sets uniform tarrifs within unions
Define NAFTA
North American Free Trade Agreement; as of 1994, removes tarrifs/trade barriers between 3 countries
Define USMCA
US Mexico Canada Agreement; sept 30 2019; replaces NAFTA; opens 3.59% of Canadian dairy market to US; car content must originate 75% from North America
How are the GATT and WTO related
WTO came after GATT and is more powerful
Are people for or against trade liberalization
Against
What characterizes the opponents of free trade?
Job loss; market flooded with goods made in Mexico; loss of control over enviro. standards, natural resources, Canadian cultural sovereignty
What characterizes the supporters of free trade?
Access to US market; more exports, therefore more jobs; no threat to enviro., natural resources, cultural sovereignty
What are the 2 new major agreements in the works
CPTPP, CETA
Define CPTPP
Comprehensive and Progressive Agreement for TransPacific Partnership; 12 countries: Canada, Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, US (who leaves in 2016)
Define CETA
Canada-European Union Comprehensive Economic and Trade Agreement; 27 Eu members (1/2 billion people), 98% of Canadian goods become duty free in EU, up from 25%
