International trade and globalization Flashcards
Free trade
refers to the practice of countries allowing goods and services to move across borders with little or no tariffs, quotas, or other restrictions
Globalization
the process by which the world becomes more interconnected through trade, investment, technology, culture, and politics. This involves the increasing movement of goods, services, people, and ideas across national borders, leading to a more integrated global economy
Supply chain
network of individuals, organizations, resources, and activities involved in producing and delivering a product or service from the initial supplier to the end customer
Global supply chain:
the same process as supply chain, but instead of everything happening in one country, different parts happen in different countries around the world
How did the fall of the Berlin Wall contribute to globalization?
The Berlin Wall symbolized the divide between the capitalist West and the communist East. Its fall marked the end of strict ideological and economic barriers that had restricted free trade and economic interaction between the East and West.
- With the collapse of communism, Eastern European countries began transitioning to market economies, allowing for greater participation in the global economy. This encouraged more integration with Western economies, especially through institutions like the European Union (EU) and the World Trade Organization (WTO), which promote free trade.
Why has globalization been in retreat recently? (6 points)
COVID-19: countries realized they were overly dependent on imports for critical supplies like medical equipment and pharmaceuticals. This led many nations to shift towards protectionism, prioritizing domestic production over global trade
→ Antigration: migration has long been a key part of globalization, as people move across borders for better economic opportunities. However, anti-immigration sentiment has risen, partly due to fears of job displacement, cultural changes, and strained public services. In some countries, migration is blamed for increasing income inequality, as low-wage workers are seen as competing with local workers, further fueling anti-globalization sentiments
→ Trump and Trade Wars: a trade war happens when countries impose tariffs (a tariff is a tax that a government places on imported goods to make them more expensive) or other trade barriers on each other in response to a dispute. The goal is often to protect local industries or to pressure other countries to change their policies. The term “trade war” became prominent during Trump’s presidency because he introduced several tariffs (import taxes) on goods, particularly from China, sparking a retaliatory response from China. This back-and-forth escalated into what many called a trade war.
→ Brexit: the UK’s decision to leave the European Union was driven in part by concerns about sovereignty, immigration, and economic control. Many Brexit supporters felt that globalization had led to economic inequality, with benefits accruing mainly to large corporations and wealthy urban centers, while leaving poorer regions behind. By leaving the EU, the UK aimed to regain control over its borders and economic policies, reflecting a broader retreat from global integration.
→ Nationalism: nationalism, fueled by the belief in prioritizing a nation’s own interests over international cooperation, has been rising globally. Leaders advocating nationalist policies often argue that globalization has eroded national sovereignty and contributed to job losses in their countries.
→ Income Inequality: while globalization has lifted millions out of poverty in developing countries, it has also exacerbated wealth inequality in many advanced economies. Wealthy corporations and individuals have often benefited the most from global trade, while many middle- and working-class citizens in developed nations have seen stagnant wages and job losses due to offshoring and automation.
For international trade (5 points)
- Access to Factors of Production: some countries have access to raw materials or cheaper labor that others don’t, making it easier or cheaper to produce certain goods (specialization leads to efficiency, do what you do best and trade)
- Innovation: trading internationally exposes companies to new ideas and technologies that can improve their products or make them more competitive.
- access to countries with competitive advantage on different products: Access to factors of production: inexpensive labor in the developing world
- lower production costs, increased profit margins, enhanced global supply chains, access to global markets, etc.
- Reduced economic risk: spread business risk across multiple countries but greater economic integration increased risk (if you have a business a bit everywhere, even if your country economy falls down, it’s not too risky since you will have businesses elsewhere)
Against international trade (3 points)
- Loss of jobs: manufacturing jobs move to the country with the lowest-paid worker
- Loss of industries: industries move to countries with lowest-paid workers (e.g. electronics, call centers, clothing)
-Increase foreign ownership: domestic resource companies being purchased by individual or companies from other countries
What are the two types of competitive advantage?
Absolute and comparative
Advantage advantage and give an example
Absolute Advantage: a country can produce more goods (more efficiency) than others with the same amount of resources (in the context of absolute advantage, “same ressources” usually means using comparable inputs like time, labor, and machinery)
example: Brazil grows more coffee than France even if both countries have the same number of workers because Brazil’s climate and land are better suited for coffee production
Comparative advantage and give an example
A country has a comparative advantage when it can produce goods at a lower opportunity cost than others
example: country A has fertile land and a great climate for growing fruit. It can grow fruit easily and cheaply but is not very efficient at making cars. Country B has advanced technology for building cars but isn’t as good at growing fruit. Country A has a comparative advantage in growing fruit. Country B has a comparative advantage in making cars
Balance of trade
The balance of trade is the difference between a country’s exports and imports of goods
Trade surplus
If a country exports more than it imports
Trade deficit
If it imports more than it exports
Why shouldn’t a country have a long term trade deficit?
A long-term trade deficit can mean that a country is relying too much on foreign goods, which can harm its economy in the long run
Balance of payment
measures the total flow of money into and out of a country
Countertrade
a type of international trade where goods and services are exchanged without using money. Instead of paying in currency, one country or company trades products or services for other products or services from another country (e.g one country might trade oil for machinery, rather than selling the oil for money and then using the money to buy the machinery)
Name a type of countertrade
Barter
World Trade Organization (WTO)
international organization dealing with the global rules of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
GATT (General Agreement on Tariffs and Trade)
a legal agreement between many countries to promote international trade by reducing or eliminating trade barriers like tariffs
Exchange rates
determine the value of one currency relative to another
Why are exchange rates important? (hint: strong dollar/currency vs weak)
A strong U.S. dollar (when people say the U.S. dollar is strong, it means that one U.S. dollar can buy more of another country’s currency than before. For example, if the U.S. dollar is strong against the Euro, it means that with one dollar, you can get more Euros) makes it cheaper to import goods (buy products from other countries) but harder for U.S. businesses to export because their products become more expensive for foreign buyers
Outsourcing and give an example
when companies hire foreign firms (another company) to produce goods or provide services at a lower cost
example: a U.S. clothing brand wants to make t-shirts. Instead of setting up a factory in the U.S. and paying workers to sew the shirts, they might outsource the production to a factory in Bangladesh, where labor is cheaper
What are the strategies for reaching global markets? (4 points)
Exporting, licensing, franchising, foreign outsourcing
