Globalization of Trade

Question 1

Identify special costs associated with international trade that often are critical in determining the viability of such trade.

Answer 1

1. Transaction costs, including costs of using letters of credit and costs of mitigating currency exchange risk
2. Transportation costs, the extra costs of shipping goods long distance and/or using more costly transportation methods
3. Tariff and other compliance costs, including the direct costs of tariffs and complying with other requirements
4. Time costs, the costs associated with the extra time due to distance and other requirements

Question 2

Identify factors that have facilitated or enable an increased in global trade.

Answer 2

1. Reductions in trade barriers
2. Increased economic integration between nations
3. Regional trade agreements
4. Development in communications (e.g., internet)
5. Development in the financial sector

Question 3

Describe changes in U.S. international trade over the past 50 years.

Answer 3

Both, U.S. imports and exports have grown dramatically over the past 50 years. The U.S. is by far the world’s largest importer and one of the top three exporters. Imports and exports each account for about 15% of purchases and output, respectively. The U.S. exports only more agricultural products and services than it imports.