Trade Basics

• International trade occurs when producers engage in cross-border exchanges of goods or services.

• A trade deficit occurs when the value of a nation's imports is greater than its exports, and a trade surplus occurs when the value of a nation's exports is greater than its imports.

• The balance of payments is a broad measure of one country's transactions with the rest of the world.

• Producing and trading products in which a nation has a comparative advantage promotes economic efficiency and regional specialization.

• The foreign exchange market has evolved significantly since the adoption of the flexible exchange rate system.

Trade Barriers

• A tariff is a customs duty that raises the price of certain imports.

• An import quota limits the quantity of certain imports.

• Other trade restrictions have been used to correct trade imbalances.

• An embargo limits some or all trade with a targeted country.

Trade Agreements

• The General Agreement on Tariffs and Trade (GATT) promoted free trade in the global economy from 1947 to 1994.

• The World Trade Organization has expanded on GATT's free trade mission since its founding in 1995.

• The four main types of regional trade agreements have achieved different levels of economic integration for member nations.

Challenges to Trade Liberalization

• Dumping and certain government subsidies are viewed as unfair trade practices.

• Shifts in global market conditions affect a country's terms of trade.

• Fair trade addresses equity concerns in the global trading system.

• Localization opposes most aspects of economic globalization.

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