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The World: A Brief Introduction by Robert Hass > Topic: Trade and Investment > Flashcards

Topic: Trade and Investment Flashcards

1
Q

Who came up with the Theory of Comparative Advantage?

A

David Ricardo

p216

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2
Q

What is the Theory of Comparative Advantage?

A

International trade allows a country to produce things that it can make more cheaply and import those that it cannot

p216

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3
Q

Why does a trade deficit tend to indicate a strong currency?

A

Strong currency makes imports cheaper and exports more expensive, leading to a deficit

p216

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4
Q

What does a global supply chain mean?

A

Instead of an item being made in one country, the process is fragmented (components and assembly takes place in multiple countries - a good may cross a boundary - even the same one - multiple times)

p216

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5
Q

The buying of unfinished goods or services that contribute to production currently accouts for X% of international trade.

A

Three quarters

p218

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6
Q

Why is the US’s trade deficit with China overstated?

A

Many of China’s exports to the US include elements from third countries (not captured in the statistics)

Could be overstated by as much as 30%

p218

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7
Q

Name two policy implications that arise from the global supply chain.

A

Policy actions to promote exporting are constrainted, e.g. …
* Tariffs - introducing these may harm domestic producers (as their raw costs go up)
* Weakening currency - raw material prices will go up for domestic producers

p218

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8
Q

What is the USA’s trade deficit with China?

To the nearest $50b

A

$400b
(precise answer: $382.9 billion)

(2022)

https://www.bis.doc.gov/index.php/country-papers/3268-2022-statistical-analysis-of-u-s-trade-with-china/file

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9
Q

China is the X most important export market for the USA, after Y and Z

A

3rd
Canada
Mexico

https://www.uschina.org/sites/default/files/us_exports_to_china_2023_0.pdf

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10
Q

What is the USA’s most important export to China?

A

Oilseeds and grain

https://www.uschina.org/sites/default/files/us_exports_to_china_2023_0.pdf

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11
Q

What is the main category that China exports to USA?

A

Computers

https://oec.world/en/profile/bilateral-country/chn/partner/usa

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12
Q

Which is China’s most important export country?

A

USA

https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/LTST/TradeFlow/Export/Partner/by-country/Product/Total

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13
Q

What are two philosophies that are opposed to free trade?

A
  • Protectionism (erecting barriers agains import of goods)
  • Mercantilism (promotion of trade surpluses)

p219

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14
Q

What’s an adavantage of trade beyond economic ones?

A

Interdependence can encourage restraint against going to war

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15
Q

What are some economic and consumer benefits of trade?

A
  • Access to larger markets (job creation etc)
  • Provides broader range of goods (e.g. coffee in the USA)
  • Lower prices
  • Stimulates innovation

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16
Q

Name two eras in USA history when tariffs were prevelant

A
  • 1930s: Smoot-Hawley law
  • 2017: Trump’s America First approach

p219-221

17
Q

What is the oldest and most common barrier to trade?

A

Tariffs

p219

18
Q

Name 3 nontariff barriers?

(list of 6 available)

A
  • Quotas
  • Bureaucracy
  • Law that % of product must be domestic
  • Certain items must be produced domestically
  • Domestic subsidies
  • Currency manipulation

p221

19
Q

One risk of a country errecting barriers against trade is r….

A

retaliation

p221

20
Q

Give an example of subsidies to a company that have helped its emergence

A

Airbus
* subsidies from France, UK, Spain, Germany
* to help it emerge as serious competitor to Boeing

p221

21
Q

Which country practiced currency manipulation to grow its exports?

A

China

p221

22
Q

What is dumping? (Trade)

A

When a country exports something at a price below what it charges at home

p223

23
Q

What body was created in 1994 to promote trade?

A

The World Trade Organization

p223

24
Q

Which country has not respected intellectual property rights (in trade terms)?

A

China

p223

25
Q

Why might a country block exports?

A

National security reasons e.g. to keep certain technologies out of the hands of actual/potential adversaries

E.g. exporting 5G tech from the USA

p223

26
Q

Which trade pact came about after WW2?

A

GATT
(General Agreement on Tariffs and Trade)

1947

p223

27
Q

Has GATT been successful in reducing tariffs?

A

Yes, tariffs have fallen from 20% in 1947 to 9% in 2018

p223

28
Q

What is the WTO’s “crown jewel”?

A

Dispute settlement system

p224

29
Q

How does the WTO promote low tariffs for manufactured goods?

A

Must be offered to members as “Most Favored Nation” status (everyone has access to the lowest level)

p224

30
Q

How much has global trade of merchandise increased over the last 50 years?

A

From just under 20% to 45% of world GDP

p224

31
Q

When it comes to reducing tariffs in agricultural goods and services, has it been MORE or LESS successful vs. manufactured goods?

A

Less

p224

32
Q

Name four regional trade agreements

A
  • European Union
  • NAFTA
  • CPTPP - trans pacific
  • RCEP- East Asia

p224

33
Q

What is the CPTPP?

A

Comprehensive and Progressive Agreement for Trans-Pacific Partnership for trade between 11 countries in the Americas and Asia (Canada, Mexico, Australia, Japan, Singapore, Vietnam…)

p224

34
Q

What is RCEP?

A
  • Regional Comprehensive Economic Partnership
  • 2020
  • 15 members
  • Spearheaded by China
  • More than double the size of CPTPP

p226

35
Q

Like trade, —– has increased sharply over the decades

A

(cross-border) investment

p226

36
Q

Why might a country NOT want foreign investment?

Mention 3 ideas

A
  • National security considerations
  • Avoid foreign ownership of critical companies
  • Protect technology/intellectual property

p228

37
Q

Explain Direct and Indirect Foreign Investment?

A

Direct investment in the context of trade, often referred to as Foreign Direct Investment (FDI), is an investment made by a firm or individual in one country into business interests located in another country.

Typically, it involves the establishment of business operations or acquisition of business assets in the foreign country, such as establishing a factory, acquiring a stake in an existing business, or starting a joint venture or partnership.

Unlike indirect investments, where investors buy equities or other financial assets and do not exert direct control over the business, direct investments involve a significant degree of influence and control over the overseas business operations.

p228

38
Q

What is the world’s GDP?

A

96.51 trillion USD (2021)

The World: A Brief Introduction by Robert Hass (16 decks)

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