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GLOBAL TRADE CARD
“Master Business Terms, Play Your Way!”
1. Balance of Trade
Definition: The difference between the total value of a country’s exports (goods sold to other countries) and its imports (goods bought from other countries) over a specific period.
Detail:
- A trade surplus occurs when exports exceed imports, indicating the country sells more than it buys.
- A trade deficit occurs when imports exceed exports, meaning the country buys more than it sells.
Example:
- Trade Surplus: Germany exports more cars and machinery than it imports, leading to a trade surplus.
- Trade Deficit: The United States often imports more consumer goods than it exports, creating a trade deficit.
2. Exchange Rate
Definition: The value of one country’s currency compared to another.
Detail:
- Exchange rates fluctuate based on supply and demand in the global currency markets.
- A strong currency makes imports cheaper but can hurt exports. A weak currency makes exports competitive but increases import costs.
Example:
- If £1 = $1.20, a UK tourist travelling to the US will get $120 for £100. If the exchange rate changes to £1 = $1.10, the same £100 will get $110, showing a weaker pound.
3. Trade Liberalization
Definition: The process of reducing or removing trade barriers, such as tariffs and quotas, to encourage free trade between countries.
Detail:
- Encourages economic growth by increasing access to foreign markets and lowering consumer prices.
- Can lead to job losses in industries unable to compete with cheaper imports.
Example:
- The North American Free Trade Agreement (NAFTA), now replaced by USMCA, reduced tariffs between the US, Canada, and Mexico, boosting trade among these countries.
4. Expropriation
Definition: When a government takes over a foreign company’s assets, often without fair compensation.
Detail:
- Expropriation can discourage foreign investment due to the risk of losing control over assets.
- Sometimes done for public interest, like land reforms, but can also be politically motivated.
Example:
- In 2008, Venezuela expropriated several oil companies, including ExxonMobil, claiming the government needed to control its natural resources.
5. Import Quotas
Definition: Limits on the quantity of a product that can be imported into a country during a specific period.
Detail:
- Quotas protect domestic industries from foreign competition by limiting the supply of imported goods.
- Can lead to higher prices for consumers due to reduced competition.
Example:
- The US has quotas on the amount of sugar that can be imported, encouraging domestic sugar production.
6. Localization Strategy
Definition: Tailoring a product or service to meet the language, culture, and preferences of a specific market or region.
Detail:
- Helps businesses connect with local consumers and build brand loyalty.
- Involves adapting packaging, advertising, and sometimes the product itself to fit local tastes.
Example:
- McDonald’s offers vegetarian burgers in India to cater to local dietary preferences, where many people don’t eat beef.
7. Foreign Direct Investment (FDI)
Definition: When a company from one country invests in another country by setting up operations, such as factories or subsidiaries, or buying local businesses.
Detail:
- FDI promotes job creation, technology transfer, and economic growth in the host country.
- Risks include political instability or changes in regulations affecting profitability.
Example:
- Toyota, a Japanese company, invests in building car manufacturing plants in the UK, creating jobs and boosting the local economy.
8. Globalization
Definition: The process where businesses, ideas, and products spread worldwide, leading to increased interconnection between countries.
Detail:
- Encourages international trade and cultural exchange.
- Critics argue it can harm local industries and cultures and lead to economic inequality.
Example:
- Apple designs its products in the US, manufactures parts in multiple countries, assembles iPhones in China, and sells them globally, showcasing globalization in action.
9. Trade Barriers
Definition: Government rules, regulations, or taxes that make it more difficult to import or export goods.
Detail:
- Barriers include tariffs, quotas, embargoes, and regulations designed to protect domestic industries.
- Trade barriers can reduce competition and lead to higher prices for consumers.
Example:
- India imposes strict certification requirements for imported electronics, which act as a non-tariff barrier to protect local manufacturers.
10. Tariff
Definition: A tax imposed by a government on imported goods to raise revenue or protect domestic industries.
Detail:
- Tariffs increase the price of imported goods, making them less competitive compared to local products.
- Can lead to trade disputes if countries impose retaliatory tariffs.
Example:
- The US imposed a 25% tariff on imported steel in 2018 to protect its domestic steel industry.
11. Quota
Definition: A limit on the quantity or value of goods that can be imported into a country during a specific time.
Detail:
- Protects local industries by restricting the supply of foreign goods.
- Can result in higher prices due to limited supply.
Example:
- The European Union sets quotas on the import of textiles from non-EU countries to protect local manufacturers.
12. Embargo
Definition: A government order that bans trade with a specific country, often for political or economic reasons.
Detail:
- Embargoes can restrict the export and import of goods, services, and resources.
- Often used as a diplomatic tool to pressure governments or resolve conflicts.
Example:
- The United States imposed an embargo on Cuba, prohibiting most trade and financial transactions with the country.
13. Supply Chain
Definition: The entire process of making and delivering a product, starting from sourcing raw materials to delivering the final product to the customer.
Detail:
- Includes procurement, manufacturing, storage, transportation, and distribution.
- A well-managed supply chain reduces costs and improves customer satisfaction.
Example:
- Apple’s supply chain involves sourcing components globally, assembling products in China, and distributing them worldwide.
14. Offshoring
Definition: Moving a company’s production or business processes to another country to save costs or access skilled workers.
Detail:
- Common in industries like manufacturing, IT, and customer support.
- Reduces costs but may face criticism for outsourcing jobs.
Example:
- Many US companies offshore customer service operations to India due to lower labour costs and a skilled English-speaking workforce.
15. Free Trade
Definition: Trade between countries without tariffs, quotas, or other restrictions.
Detail:
- Encourages competition, reduces costs for consumers, and promotes economic growth.
- Critics argue it can harm local industries unable to compete with cheaper imports.
Example:
- The European Union operates as a free trade zone, allowing goods to move freely between member countries without tariffs.
16. Licensing
Definition: Allowing another company to use your product, brand, or intellectual property for a fee or royalty.
Detail:
- Helps companies expand into new markets without significant investment.
- Reduces control over how the brand or product is used.
Example:
- Disney licenses its characters to companies around the world for merchandise production, such as toys and clothing.
17. Joint Venture
Definition: A business arrangement where two or more companies come together to work on a specific project, sharing resources, risks, and profits.
Detail:
- Joint ventures allow companies to access new markets or share costs and expertise.
- Often formed for a limited period or specific purpose.
Example:
- Sony Corporation and Ericsson created a joint venture, Sony Ericsson, to produce mobile phones.
18. Outsourcing
Definition: Paying another company to perform tasks or services that your business could do internally, to save time or money.
Detail:
- Outsourcing helps companies focus on core activities while specialists handle non-core tasks.
- Popular in industries like IT, manufacturing, and customer support.
Example:
- A UK company outsources its accounting work to a firm in India to save costs and improve efficiency.
19. Dumping
Definition: Selling goods in a foreign market at a very low price, often below the cost of production, to eliminate competition.
Detail:
- Dumping can harm local industries and is often considered unfair trade practice.
- Governments may impose anti-dumping duties to protect domestic businesses.
Example:
- China was accused of dumping steel in European markets at prices lower than domestic production costs.
20. Trade Agreement
Definition: A deal between two or more countries to simplify trade by reducing tariffs, quotas, and other restrictions.
Detail:
- Trade agreements promote economic cooperation and can cover goods, services, and investments.
- Bilateral or multilateral in scope.
Example:
- The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a trade agreement among 11 countries.
21. Intellectual Property
Definition: Ideas, inventions, and creations that are legally protected and owned by individuals or businesses.
Detail:
- Types of intellectual property include patents, trademarks, copyrights, and trade secrets.
- Encourages innovation by giving creators legal ownership of their work.
Example:
- Apple’s iPhone designs are protected by intellectual property laws, preventing unauthorised copying.
22. Emerging Markets
Definition: Countries with developing economies that are growing rapidly and offering new business opportunities.
Detail:
- These markets often have rising middle-class populations and expanding industries.
- Riskier investments due to potential political or economic instability.
Example:
- India and Brazil are examples of emerging markets attracting foreign investments.
23. Comparative Advantage
Definition: When a country can produce a good or service more efficiently and at a lower cost than others.
Detail:
- Allows countries to specialise in producing certain goods while importing others, boosting trade efficiency.
Example:
- Saudi Arabia has a comparative advantage in oil production due to its vast natural reserves and low extraction costs.
24. Multilateral Agreement
Definition: A trade deal between three or more countries to promote international trade by reducing barriers.
Detail:
- Multilateral agreements often involve complex negotiations and cover a wide range of trade issues.
Example:
- The World Trade Organisation (WTO) agreements are multilateral deals aimed at facilitating global trade.