International Trade Chapter #4

International Trade Is the exchange of goods and services among national Imports – are goods and services purchased from other countries Exports – are goods and services sold to other countries

Interdependence of Nations Countries can’t produce everything they need they need to trade with other countries. Absolute Advantage – occurs when a country has natural resources or talents that allow it to produce an item at the lowest cost possible. China produces 80 of the worlds silk. Comparative Advantage – is the value that a national gains by selling what it produces most efficiently. US sells High Tech goods because of its infrastructure, raw materials and educated work force.

Benefits of International Trade Consumers High Quality Goods Lower Prices Variety of Goods Producers Expand Business More Customers Workers Higher employment rates

Government Involvement in International Trade US monitors imports and exports through the customs division of the US Treasury Department. Balance of Trade – the difference in value between exports and imports. Positive Balance – surplus country exports more than it imports Negative Balance – Trade deficit when a nation imports more than it exports US has a trade deficit – We focus on services not goods, We purchase more than other nations, we are the largest exporter. More money leaves the country than comes into the country.

Trade Barriers Free Trade – No barriers free market principles Tariffs – Tax on imports, Creates revenue for a country Protective Tariffs are used to increase the costs of imported goods so domestic goods can compete. Quotas – limits the quantity or value of goods that can be imported We limit the number of cars coming from other countries.

Trade Barriers Cont… Embargoes – a total ban on specific goods coming into and leaving a country. Cuba and the USA Protectionism – is a government establishment of economic policies that systematically restrict imports in order to protect domestic industries Subsidies – Government funding of domestic products to make them competitive.

Trade Agreements and Alliances World Trade Organization (WTO) 148 members coalition of nationals that make rules governing international trade. North American Free Trade Agreement (NAFTA) trade agreement between USA, Mexico and Canada (1994) get rid of trade barriers. European Union (EU) Europe’s trading Bloc (1992) free trade, central bank and a single currency.

Optional for International Business Importing – Purchasing goods from other countries Must meet same standards as US goods Be aware of quotas Exporting – Selling goods (minimal risks) US will help companies Licensing – involves letting another company use a company name, or some other intellectual property for a fee or royalty. Contract Manufacturing – involves hiring a foreign manufacturer to make your product according to your specifications Joint Ventures- is a business enterprise that companies set up together.

Joint Ventures Joint Ventures are considered foreign direct investments – is the establishment of a business in a foreign country. Multinationals – large corporations that have operations in several countries Mini-nationals – are midsize or smaller companies that have operations in foreign countries.

International Trade Options Exporting – Lower Risk – Low Profit Potential Licensing – Larger Risk – Larger Profit Contact Manufacturing – Higher risk – higher profit Direct Investment – Highest Risk – Highest Profit

Global Environment Scan Political – Governments stability Trade Regulations and Laws Economic Factors – Infrastructure, Labor Force, Employee Benefits, Taxes, standard of living, Foreign Exchange Rate Socio-Cultural Factors- Language, Holidays, Religion, Business Etiquette Technological Factors -

Global Marketing Strategies Globalization- is selling the same product and using the same promotion methods in all countries. Adaptation- is a company’s use of an existing product or promotion to which changes are made to better suit the country Customization- involves creating specially designed products or promotions for certain countries or regions.

REVIEW Page 91 Questions 1-11