International Trade: Key Concepts and Definitions

Posted on Mar 23, 2025 in Economy

International Trade: Key Concepts

Licensing and Exporting

  • Licensing: Allowing someone to produce using your brand.
  • Exporting: Producing in your own country and selling abroad.

Outsourcing and Offshoring

  • Outsourcing: Contracting out a business function, commonly one performed in-house, to an external provider.
  • Offshoring: The relocation by a company of a business process from one country to another, usually an operational process such as manufacturing, or a supporting process such as accounting.

Trade Agreements

  • Multilateralism: A group of countries deciding to adopt the same trade rules in order to work together (e.g., WTO).
  • Regionalism: A group of countries creating barriers against others (e.g., EU).
  • BRICS: Group of emerging countries in the international economy. It is integrated by Brazil, Russia, India, China and South Africa

Economic Concepts

  • Abundant: A country is labor-abundant when it has a higher ratio of labor to other factors than the rest of the world.
  • Intensive: A product is labor-intensive when its labor costs are a greater share of its value than they are of the value of other products.
  • General Equilibrium: When more than one value or an economy as a whole is taken into account.
  • Partial Equilibrium: Relates to a single variable.
  • Scale Economies: Output quantity goes up by a larger proportion than total costs do. The average cost of producing one unit decreases.
  • Monopolistic Competition: The market share is bigger, so the firm can establish prices.
  • Intra-industry Trade: The exchange of similar products belonging to the same industry. It is usually applied to international trade where the same type of goods and services are imported or exported.

Dumping

Dumping: Selling exports at a price that is less than their normal value. A firm establishes a price that is lower than the production costs of a firm in the country that is buying the product, so it cannot be competitive with the exporter.

  • Predatory Dumping: Temporary, to eliminate competition.
  • Cyclical Dumping: Occurs during recessions.
  • Seasonal Dumping: When a firm has an excess of inventory.

Trade Barriers

  • Tariff: A tax on importing goods or services into a country, collected by customs officials at the place of entry. It can be specific, ad valorem, or mixed.
  • Quota: A limit on the total imports allowed in a country.
  • Effective Rate of Protection: A measure of the percentage effect of the entire tariff structure on the value added per unit of output in each country. Calculated as: ((VAfinal – VAinitial) / VAinitial) x 100
  • Non-Tariff Barriers (NTBs): Restrictions or regulations that increase the difficulty of entering a country’s market. As tariff barriers tend to be lower, NTBs tend to increase. Examples include quotas, government requirements, origin rules, custom valuation, product standards, domestic content requirements, and mixing requirements.

Economic Metrics

  • One Dollar-One Vote Metric: Each dollar of gain or loss is valued equally, regardless of who experiences it.
  • One Dollar-One Vote Yardstick: The sum of monetary values, including consumer and producer surplus.

Trade Effects

  • Trade Creation: The net volume of new trade resulting from forming or joining a new trade bloc.
  • Trade Diversion: The volume of trade shifted from low-cost outside exporters to higher-cost bloc-partner exporters.

Economic Integration

  • Full Economic Union: The final stage of economic integration. After complete economic integration, the integrated units have no or negligible control of economic policy, including full monetary union and complete or near-complete fiscal policy harmonization.