Quiz 2: The Dynamic Environment of International Trade

Business

GATT: General Agreement on Tariff and Trade is a multilateral agreement between its member countries for regulating international trade. Nontariff Barriers : Nontariff barriers can be defined as non-tax barriers. It includes Quotas, boycotts, market barriers etc. World Trade Organization (WTO) : WTO can be defined as an organization for regulation of trade between member countries. International Monetary Fund (IMF) : IMF can be defined as a funding organization that supports and assist the member nations to become and remain economically strong. Balance of payments: Balance of payments can be defined as a system of accounts that records a country's international financial transactions. Tariff : Tariff can be defined as the tax that a country imposes in imports or goods entering into the country. Current Account : Current account can be defined as a record of all exports, imports and services and unilateral transfer of funds of a country for a specific period of time. Voluntary Export Restraints (VERs) : VERs can be defined as the agreement between importing and exporting countries to limit the volume of exports. Protectionism: Protectionism can be defined as an act of a country to protect its interest and market by creating different types of barriers for international trade.

Globalization refers to the trends of expansion of business beyond national boundaries at a global level due to advancement in technology, communication, transportation etc. After 1991 the world became one, as the global territories shrinked and all the countries became liberal and started operating at international territories. This all was a result of decreased protectionism, tariff non-tariff barriers, free trade promotion, various acts and institutions like GATT, WTO, IMF which supported international trade, provided the required support to its members for expanding their business operations globally. US economy seen a different era of globalization, After World War II, US was the main country which was exporting to almost every country and they had a very strong position. It has industrial self-sufficiency in the 18 th 19 th centuries. After World War II, U.S helped in rebuilding the economies and got benefited both ways. Every invested dollar from US resulted in more purchase of agricultural goods, manufactured goods services from US. This fast growth of the developing underdeveloped countries which received large cooperation and assistance from US resulted in new marketing opportunities globally. This raised the standards of living and industrial markets globally and created opportunities for companies to expand exports and go global. US organizations also started exporting and making investments in marketing and production facilities overseas though, they faced many challenges, restrictions and competition in global export markets. US economy being a free trade market allowed all the other countries to export their products freely in its home market however itself faced protectionism from the countries which didn't allowed to export US organizations to their countries because of certain barriers regulations, protectionism, political pressure, society influences etc. Now we US economy has entered a global economic interdependence era wherein they have shifted from the self-sufficiency stage to Global interdependence. Most of the jobs or GDP of the economy of US depends on other economies as exports are their major earning. Thus, because of globalization the US economy has shifted from self-dependent to interdependence stage.

Countries are involved in international trade which results in some financial transactions. Also there occurs a lot of exports, imports, exchange of gifts, cash payment, cash receipt, investments etc. which leads to flow of money in and out of any country which they record as a accounting system referred to as balance of Payments. Current account : This account refers to the records of all the international Merchandise trade and services for a particular period. Thus all the merchandise and services which are imported and exported and also all the receipts and payments from investments for a particular period are referred to as current account. This is a part of Balance of payments account for any country. Negative current balance account drastically affects the Balance of payments. Balance of trade : It refers to difference between the amount of imports and exports which a country makes during the period of time. When for any accounting year a country makes more exports that imports it is said to have a favorable trade balance called trade surplus while if imports exceeds exports it results in trade deficit. It is one of the major portions of the balance of payments current account. Trade surplus are helpful during recession as it results in creation of jobs increasing demand for goods while during expansion phase of any economy trade deficit is useful as due to more imports prices could be in control because of competition. Balance of Payments : It is an accounting system which records a country's International Financial transactions over a period of time. whenever a country create financial transactions which occurs between the country and other nation which might include all or any of these viz. export, import, monetary gifts, investments, cash payments, cash receipts, vacation and foreign travel etc. accounting to some financial implications and which are recorded through a double entry bookkeeping system is referred to as Balance of payments of that nation. Balance of payment statement generally includes 3 accounts the Current account which refers to the records of all Merchandise exports imports and services Capital account which records direct investments, portfolio investments and short term capital movements to and from the country and Official Reserve Account which is meant to record exports and imports of gold, increase or decrease in foreign exchange or in liabilities to foreign Central banks. Thus Balance of payments refers to overall record which a country makes for its foreign transactions while current account is the part of Balance of payment where merchandise and services exports and imports for a year are recorded. Balance of trade is further a part of current account calculated from only exports and imports difference.

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