chapter 4

• Globalization


  Process by which the world economy is becoming a single interdependent system
• Import


  Product made or grown abroad but sold domestically
• Export


  Product made or grown domestically but shipped and sold abroad
• Global Clusters


  • North America
  • Europe
  • Pacific Asia
• North American Free Trade Agreement (NAFTA)


  Agreement to gradually eliminate tariffs and other trade barriers among the United States, Canada, and Mexico
• NAFTA is OUT, USMCA is IN!
• European Union (EU)


  Agreement among major European nations to eliminate or make uniform most trade barriers affecting group members
• EU is the largest free marketplace
• Association of Southeast Asian Nations (ASEAN)

  Organization for economic, political, social, and cultural cooperation among Southeast Asian nations
• General Agreement on Tariffs and Trade (GATT)


  International trade agreement to encourage the multilateral reduction or elimination of trade barriers
• World Trade Organization (WTO)

  Organization through which member nations negotiate trade agreements and resolve disputes about trade policies and practices
• WTO has 164 members
• Goals of the WTO

  • Promote trade by encouraging members to adopt fair trade practices
  • Reduce trade barriers by promoting multilateral negotiations
  • Establish fair procedures for resolving disputes among members
• Balance of Trade


  Economic value of all products a country exports minus the economic value of all products it imports
• Trade Deficit


  Situation in which a country's imports exceed its exports, creating a negative balance of trade
• Trade Surplus


  Situation in which a country's exports exceed its imports, creating a positive balance of trade
• Balance of Payments


  Flow of all money into or out of a country
• Absolute Advantage


  The ability to produce something more efficiently than any other country can
• Absolute Advantage


  • Saudi oil, Brazilian coffee beans, and Canadian timber
• Comparative Advantage


  The ability to produce some products more efficiently than others
• National Competitive Advantage


  International competitive advantage stemming from a combination of factor conditions, demand conditions, related and supporting industries, and firm strategies, structures, and rivalries
• Levels of International Involvement


  • Exporters and Importers
  • International Firm
  • Multinational Firm
• Independent Agent


  Foreign individual or organization that agrees to represent an exporter's interests
• Licensing Arrangement


  Arrangement in which firms choose foreign individuals or organizations to manufacture or market their products in another country
• Branch Office


  Foreign office set up by an international or multinational firm (firm's own manager)
• Strategic Alliance


  Arrangement in which a company finds a foreign partner to contribute approximately half of the resources needed to establish and operate a new business in the partner's country - also called joint venture
• Foreign Direct Investment (FDI)


  Arrangement in which a firm buys or establishes tangible assets in another country
• Quota


  Restriction on the number of products of a certain type that can be imported into a country
• Embargo


  Government order banning exportation and/or importation of a particular product or all products from a particular country
• Tariff


  Tax levied on imported products
• Subsidy


  Government payment to help a domestic business compete with foreign firms