Key Terms
- absolute advantage
- The situation when a country can produce and sell a product at a lower cost than any other country or when it is the only country that can provide the product.
- 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.
- balance of trade
- The difference between the value of a country’s exports and the value of its imports during a specific time.
- buy-national regulations
- Government rules that give special privileges to domestic manufacturers and retailers.
- contract manufacturing
- The practice in which a foreign firm manufactures private-label goods under a domestic firm’s brand name.
- countertrade
- A form of international trade in which part or all of the payment for goods or services is in the form of other goods and services.
- devaluation
- A lowering of the value of a nation’s currency relative to other currencies.
- direct foreign investment
- Active ownership of a foreign company or of manufacturing or marketing facilities in a foreign country.
- dumping
- The practice of charging a lower price for a product in foreign markets than in the firm’s home market.
- embargo
- A total ban on imports or exports of a product.
- European integration
- The delegation of limited sovereignty by European Union member states to the EU so that common laws and policies can be created at the European level.
- European Union
- Trade agreement among 27 European nations.
- exchange controls
- Laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, such as a central bank.
- exporting
- The practice of selling domestically produced goods to buyers in another country.
- exports
- Goods and services produced in one country and sold to other countries.
- floating exchange rates
- A system in which prices of currencies move up and down based upon the demand for and supply of the various currencies.
- free trade
- The policy of permitting the people and businesses of a country to buy and sell where they please without restrictions.
- free-trade zone
- An area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone.
- G20
- Forum that brings together 19 countries plus the European Union and the African Union—the largest and fastest-growing economies in the world.
- global vision
- The ability to recognize and react to international business opportunities, be aware of threats from foreign competition, and effectively use international distribution networks to obtain raw materials and move finished products to customers.
- import quota
- A limit on the quantity of a certain good that can be imported.
- imports
- Goods and services that are bought from other countries.
- infrastructure
- The basic institutions and public facilities upon which an economy’s development depends.
- International Monetary Fund (IMF)
- An international organization, founded in 1945, that promotes trade, makes short-term loans to member nations, and acts as a lender of last resort for troubled nations.
- joint venture
- An agreement in which a domestic firm buys part of a foreign firm or joins with a foreign firm to create a new entity.
- licensing
- The legal process whereby a firm agrees to allow another firm to use a manufacturing process, trademark, patent, trade secret, or other proprietary knowledge in exchange for the payment of a royalty.
- Mercosur
- Trade agreement between Argentina, Bolivia, Brazil, Paraguay, and Uruguay.
- multinational corporations
- Corporations that move resources, goods, services, and skills across national boundaries without regard to the country in which their headquarters are located.
- nationalism
- A sense of national consciousness that boosts the culture and interests of one country over those of all other countries.
- North American Free Trade Agreement (NAFTA)
- A 1993 agreement creating a free-trade zone including Canada, Mexico, and the United States; now replaced by the United States-Mexico-Canada Agreement (USMCA).
- outsourcing
- Sending work functions to another country, resulting in domestic workers losing their jobs.
- preferential tariff
- A tariff that is lower for some nations than for others.
- principle of comparative advantage
- The concept that each country should specialize in the products that it can produce most readily and cheaply and trade those products for those that other countries can produce more readily and cheaply.
- protectionism
- The policy of protecting home industries from outside competition by establishing artificial barriers such as tariffs and quotas.
- protective tariffs
- Tariffs that are imposed in order to make imports less attractive to buyers than domestic products are.
- tariff
- A tax imposed on imported goods.
- trade deficit
- An unfavorable balance of trade that occurs when a country imports more than it exports.
- trade surplus
- A favorable balance of trade that occurs when a country exports more than it imports.
- Uruguay Round
- A 1994 agreement originally signed by 117 nations to lower trade barriers worldwide.
- World Bank
- An international bank that offers low-interest loans, as well as advice and information, to developing nations.
- World Trade Organization (WTO)
- An organization established by the Uruguay Round in 1994 to oversee international trade, reduce trade barriers, and resolve disputes among member nations.