Exam 1 Study Guide
Chapters 1-3, 6-7, 9
Terms and Concepts:
Globalization – INTEGRATED ECONOMY
The shift toward a more integrated and interdependent world economy.
Components of Globalization:
Globalization of Markets – MERGING TO GLOBAL
The merging of distinctly separates national markets into a global marketplace.
Globalization of Production – GOODS & SERVICES FOR COST/QUALITY
VARIATIONS
The sourcing of goods and services from locations around the world to exploit national
differences in the cost and quality of factors of production.
Drivers of Globalization – DECLINING TRADE, INVESTMENT BARRIERS, &
TECHNOLOGICAL CHANGE
-Decline in free flow of goods, services, and capital.
-High tariffs on imports of manufactured goods; used to protect domestic industries from
foreign competition.
-Advances in communications, information processing, transportation technology, and
the emergence of the “Internet of Things.”
Limits to Globalization of Markets – CONSUMER PREFERENCES,
DISTRIBUTION CHANNELS, LEGALITIES
Significant differences still exist among national markets with respect to consumer tastes
and preferences, distribution channels, cultural values, business systems and legal
regulations.
-These differences require companies to customize marketing strategies, product features
and operating practices.
Limits to Globalization of Production – SUPPLY CHAIN
Managing a global web of suppliers and production facilities is complex.
-The costs of using a nation’s factors of production can change.
–Government policies and barriers to trade
–Transportation costs
–Exchange rate fluctuations
–Resource availability
Global Web of Production Facilities – DIFFERENT STAGES OF PRODUCTION
ARE IN DIFFERENT LOCATIONS
When different stages of the value chain are dispersed to those locations around the globe where
value added is maximized or where costs of value creation are minimized
Containerization – USING STANDARD DIMENSION CONTAINERS FOR
CHEAPER
-Simplifies transshipment from one mode of transport to another.
-Significantly lowers the cost of shipping goods over long distances.
The Globalization Debate: The Positives of and Concerns with Globalization
Positives: TRADE POLICY, INVESTMENT, ECONOMIC GROWTH, JOBS
-Falling barriers to international trade and investment are driving the global economy
toward greater prosperity.
-Increased international trade and cross-border investment will result in lower prices for
goods and services
-Globalization stimulates economic growth, raises the incomes of consumers, and helps
create jobs in all countries that participate in the global trading system.
Concerns: FOREIGN COMPETITORS, WAGE RATES, and CULTURE
-Job losses in industries under attack from foreign competitors
-Downward pressure on the wage rates of unskilled workers
-Environmental degradation
-Cultural imperialism of global media and multinational enterprises
Phases of Globalization:
Phase 1: late 1800s to 1914
Phase 2: 1918 to 1939
Phase 3: 1944 to 1973
Phase 4: late 1970s to late 2000s
Phase 5: 2016 - current
Risks in International Business-
Commercial: LOSS DUE TO BUSINESS STRAGETY
Loss due to poorly developed or executed business strategies, tactics, or
procedures
Political: GOV POLICY
Changes in governmental policies that adversely impact the profitability/value of
firm
Economic: EXCHANGE RATES
Loss due to the adverse impact of fluctuations in exchange rates
Legal: VIOLATIONS & RIGHTS
Loss due to contract violations, inadequate protection of property rights, and/or
violations of intellectual property rights
Cultural: RELIGION/CULTURAL BELIEFS
Loss due to culturally based differences in customs, attitudes, values, language,
and/or religion
Intellectual Property: PERSONAL PROPERTY
Property that is the product of intellectual activity
Intellectual Property Rights: COPYRIGHTS, TRADEMARKS, ETC.
Establish ownership rights over intellectual property
-Contains Patents, Copyrights, Trademarks, and Factors of Production.
Patents: PERIOD TO SPECIFICALLY MANUFACTURE
Grant the inventor of a new product or process exclusive rights for a defined period to the
manufacture, use or sale of that invention
Copyrights: DESPERSE OF PUBLISHED WORKS
The exclusive legal rights of authors, composers, playwrights, artists and publishers to
publish and disperse their work as they see fit
Trademarks: DIFFERENTIATION/SYMBOLISM OF PRODUCTS
Designs and names by which firms designate and differentiate their products
Trade Barrier - REGULATIONS
A government policy or regulation that restricts international trade
Tariffs: SALES TAXES
Duties imposed by a government on imported or exported goods
Non-tariff Barriers: TAX EFFECT ON TRADE
Any governmental regulation, policy or procedure other than a tariff that has the effect of
impeding international trade
Factors of Production: RESOURCES USED
Resources used in the production of goods and services
–Land: naturally-occurring goods including soil, minerals, plants, animals, water and
weather
–Labor: human efforts, including physical and intellectual, provided in the creation of
products
–Capital: human-made goods or means of production including machinery, tools and
buildings
Factor Endowments – AMOUNT OF COUNTRY MANUFACTURING
POTENTIAL
Commonly understood as the amount of land, labor, capital, and entrepreneurship that a
country possesses and can exploit for manufacturing.
Factor Cost Differences - PARTICULAR FACTOR OF PRODUCTION COST
Factor cost is the unit cost of a particular factor of production
Ex) wage rate or rental rate of capital
Outsourcing - OUTSIDE SUPPLIER
Procuring from an outside supplier products or services which were previously performed
in-house
Offshoring – LOWER COST OVERSEAS
The practice of basing some of a company’s processes or services overseas, so as to take
advantage of lower costs.
Reshoring – OPERATION BACK TO COUNTRY OF COMPANY
The practice of transferring a business operation that was moved overseas back to the
country from which it was originally relocated.
Onshoring – RESENDING OPERATION BACK OUT OF COUNTRY
The practice of transferring a business operation that was moved overseas back to the
country from which it was originally relocated.
Economies of Scale – INCREASE PRODUCTION TO BETTER PROFIT
Cost advantages resulting from increased production
Beggar-Thy-Neighbor Trade Policies – GAIN VS EXPENSE OF NATIONS
A trade policy that results in one trading partner gaining an advantage at the expense of
another nation
Commanding Heights – BOOK/VIDEO ON GLOBALIZATION & FREE
MARKETS
The Commanding Heights attempts to trace the rise of free markets during the last
century as well as the process of globalization.
The commanding heights of the economy refers to existing private industry essential to
the economy like public utilities, natural resources, heavy industry and transport as well
as control over foreign and domestic trade.
Keynesian Economic Theory – BALANCE OF GOV & CONSUMER SPENDING
Economies self correct over time
Multiplier effect
Gov. spending in the economy creates consumer spending
Ex) Recessions, sales drops
Great Depression
War Reparations – PAYMENT TO VICTORS FOR DAMAGE
Are payments made after a war by the vanquished to the victors. They are intended to
cover damage or injury inflicted during a war.
Inflation – CHANGE IN VALUE OF MONEY
General increase in prices and fall in the purchasing value of money.
Hyperinflation – FAST CHANGE OF VALUE
Monetary inflation occurring at a very high rate.
Deflation – LOWERING PRICE
Reduction of the general level of prices in an economy.
Stagflation – RISE OF PRICE & UNEMPLOYMENT
Persistent high inflation combined with high unemployment and stagnant demand in a
country's economy.
Deregulation – REMOVAL OF REGULATIONS OF RESTRICTIONS
The removal of regulations or restrictions, especially in a particular industry.
Disadvantages of State-Owned Enterprises – GOV REGULATING
Strict government control & restrictions
Strong corporate culture and management tone
Political Influence
Required labor union
Focused workforce
Privatization – PUBLIC TO PRIVATE
The transfer of a business, industry, or service from public to private ownership and
control.
Bretton Woods Conference
United Nations Monetary and Financial Conference – WORLD FINANCING w
GOLD and MONEY
World Financial Meeting
Created International Monetary Fund & World Bank
Gold and Dollar conversion
Glass-Steagall Act (GSA) – SEPARATION OF BANK & INVESTING TO
ELIMINATE CONFLICTS AND FINANCIAL INSTABILITY
Mandate of the separation of commercial banking and securities activities in the financial
sector
Banking Act of 1933
Created conflicts of interests and speculative risks
Totalitarianism: THINK KING – ABSOLUTE CONTROL
-One person or party exercises absolute control over all spheres of life.
-There is often political repression, no free elections, free speech or basic civil liberties.
Market Economies: PRIVATELY OWNED / SUPPLY & DEMAND
-Productive activities are privately owned.
-The goods and services that a country produces are dictated through supply and demand.
-The role of the government is to promote vigorous free and fair competition.
Command Economies: COUNTRY ITEMS PRODUCED FOR GREATER GOOD
-The goods and services that a country produces, the quantity in which they are produced
and the prices at which they are sold are all planned by the government.
-Businesses are state owned and run for the “greater good.”
-Widely implemented during the 30 years following World War II.
Mixed Economies: PRIVATE & GOV FOR ECONOMY
-Certain sectors of the economy are left to private ownership while other sectors have
significant state ownership and government planning.
-Governments may also take over troubled firms that they consider to be vital to national
interests.
Common Law: PAST COURT AS PRECEDENTS
-Past court decisions act as precedents to form future policies.
-The judge plays a significant role as a law maker.
-Contracts tend to be very detailed with all contingencies specified.
-Common law prevails in England and in countries originally colonized by the British
Empire.
Civil Law: LEGISLATION
-Every law of the country is codified or written into comprehensive codes.
-Legislation, not court rulings, is the primary source of law, and the duty of the judge is to
apply the law as enacted.
-Contracts tend to be shorter and less specific.
-Civil law is used in many European countries including France, Germany, and Italy.
Theocratic Law: RELIGIOUS DOCTRINE
-Theocratic legal systems combine religious doctrine with legal principles and have their
foundation in the sacred texts of religious traditions.
-The word of God is the foundation for the nation’s legal framework.
-Theocratic systems include Islamic law and Judaic law.
Collectivism vs. Individualism
Collectivism – Good of the majority
Individualism – Individual economic and political freedoms ground rules society is
based on.
Socialism – GOV CONTROLS KEY SECTORS OF ECONOMY
State should own enterprises and run them for public good rather than private profit.
Some focus on controlling key sectors of economies
Many countries moved to privatization
Islamic Law – PRACTICED NOW THEORCRATICALLY
Most widely practiced theocratic legal system in the modern world
First-Mover Advantages – COMP ADVANTAGE BY BEING FIRST
The advantage gained by the initial “first-moving” significant occupant a market segment
Has first mover advantage if it is the first entrant and gains a competitive advantage
through control of resources
Fiscal Policy: GOV TAXES & SPENDING
-Fiscal policy attempts to influence the direction of an economy through changes in
government taxes or through governmental spending.
-Jobs are created when consumers, businesses, and governments spend money.
-Fiscal policy can take longer than monetary policy to impact an economy.
Monetary Policy: INTEREST RATES & MONEY SUPPLY
-Monetary policy attempts to influence an economy by controlling interest rates and the
supply of money.
-Monetary policy tools often have a quick and substantial impact on a economy.
Monetary Policy Tools: SECURITIES, DISCOUNTS, REQUIREMENTS
-Banking reserve requirements
-Buying and selling of government securities
-Discount rates
Discount Rate: IR ON SHORT TERM LOANS
The interest rate that the Fed charges banks for short term loans
Federal Funds Rate: IR FOR OVERNIGHT LOANS
Interest rate banks charge each other for overnight loans
Asset Bubbles – ASSET COST BUILD TOO HIGH TOO FAST
When price of an asset, such as housing, stocks or gold, become over-inflated. Prices rise
quickly over a short period.
Not supported by underlying demand rather a bubble when investors bid up the price
beyond any real sustainable level
Moral Hazard – PROTECTED BUT RISKS OTHERS
Situation in which one party gets involved in a risky event knowing that it is protected
against the risk and the other party will incur the cost. When both parties have incomplete
info about each other.
Budget Deficit – GOV SPEND VS EARN
Different between what the federal government spends and what it takes in (outlays and
receipts)
National Debt – BORROWING TO COVER DEFICITS
Public debt. Result of the federal government borrowing money to cover years and years
of budget deficits.
Mercantilism: EXPORT MORE THAN IMPORT
-Mercantilism contends a country should strive to maintain a trade surplus by exporting
more than it imports.
-Countries should maximize exports through subsidies and minimize imports through
tariffs and quotas.
Neo-Mercantilism: IMPORTS ARE BAD
The notion that imports are inherently bad for an economy.
Theory of Absolute Advantage: TRADE ONLY IF BENEFICIAL
-Countries should engage in trade when they have an absolute advantage in their ability
to produce a good efficiently.
-A country should produce only goods where it is most efficient, and trade for those
goods where it is not efficient.
Production Possibility Frontier (PPF) – OUTPUT OF 2 GOODS CURVE
Curve depicting all maximum output possibilities for two goods, given a set of inputs
consisting of resources and other factors.
Assumes all inputs are used efficiently.
Opportunity Cost – GAIN VS. LOSS OF EVENT
The loss of potential gain from other alternatives when one alternative is chosen
Ex) Spending time at a movie, you can’t spend time or money on something else.
Ricardo’s Theory of Comparative Advantage: IF TOP OF ALL PRODUCTION
CAN STILL BENEFIT IN TRADE
-Demonstrates that countries can benefit from trade even if a country has an absolute
advantage of production in all products.
-A country should specialize in the production of goods that it produces most efficiently
and buy the goods it produces comparatively less efficiently from other countries.
-A nation may import products even when it has an absolute advantage in the production
of that product.
Immobile Resources – EASY RESOURCE NO COMP ADVANTAGE
The concept that is a resource is easy to obtain by competitors because the cost of
developing, acquiring or using that resource is relatively low, then that resource cannot
provide a competitive advantage.
Diminishing Returns – LEVEL WHEN LOSS EXCEEDS OVERALL BENEFIT
Refers to a point at which the level of profits or benefits gained is less than the
amount of money or energy invested
Ex) Guitar Shop
State Effects of Trade – SOCIAL WELFARE BASED ON EXPORTS
The increase in social welfare as a result of maximized national output due to optimum
utilization of country’s factor endowments or resources.
Dynamic Effects of Trade – BENEFITS BOOSTING ECONOMIC GROWTH
Benefits which accelerate economic growth of participating countries.
Heckscher-Ohlin Theory: FACTOR EDOWMENTS & COSTS DETERMINE
COMPARATIVE ADVANTAGE
-Purports that differences in factor endowments and factor costs determine comparative
advantage.
-Countries should export goods that intensively use factor endowments, which are locally
abundant, and import goods made from locally scarce factors.
Product Life-Cycle Theory: INTRO>GROWTH>MATURITY>DECLINE
-Contends a product evolves through distinct stages from its introduction to its
withdrawal from the market: Introduction, Growth, Maturity, and Decline.
-The level of competitive rivalry and the sources of competitive advantage change during
each of the stages.
-As products mature, both the location of sales and optimal production location changes.
New Trade Theory: ECONOMIES OF SCALE & FIRST MOVER ADVANTAGES
Contends that countries sometimes specialize in the production and export of certain
products not because of underlying differences in factor endowments but because of
economies of scale and first mover advantages.
NTT Implications:
-Nations may benefit from trade even when they do not differ in resource endowments or
technology.
-A country may dominate international trade in an industry as a result of being first to
enter and achieve economies of scale, thereby discouraging later entrants.
-The desire to create first-mover advantages may compel governments to intervene in
free trade.
Porter’s Determinants of National Competitive Advantage: REASONS FOR
SUCCESS IN AREAS FOR COMP ADVANTAGE
-The theory attempts to explain the reasons for a nation’s success in a particular industry.
-Proposes four broad attributes shape the environment in which local firms compete, and
these attributes promote or impede the creation of competitive advantage.
Factors of Production: (Factor Endowments)
Basic: GENERAL
–Passively inherited or require only modest investment
–Natural resources, climate, location and unskilled labor
Advanced: HIGHLY SKILLED
–Require time and effort to develop and usually more relevant for competitive advantage
–Highly skilled labor, communication infrastructure and education
Generalized: VERASATILE
–Can be used by many industrial sectors
–Infrastructure system, capital markets
Specialized: SKILLED/FOCUSED
–Focused application opportunities
–Skilled personnel in a specific industry
–specialized factors provide more decisive and sustainable bases for competitive
advantage
Factor Endowments Continued:
-Advanced factors and specialized factors are usually more relevant for sustained
competitive advantage.
-Basic factors can provide an initial advantage that is subsequently reinforced and
extended by investment in advanced factors.
-Disadvantages in basic factors can create pressures to invest in advanced factors.
Balance-of-Payments Accounts - PAYMENTS/RECEIPTS OF DBT&CR
-National accounting system that tracks both payments to and receipts from other
countries.
-Transactions are posted to the current, financial, or capital account.
-Uses a double-entry system where each international transaction creates two offsetting
entries within the three accounts.
-Debits (-) = payments to another country
-Credits (+) = receipts from other countries
Current Account - IMPORTS/EXPORTS OF GOODS/SERVICES &
INVESTMENTS
-The current account records transactions involving:
–the import and export of goods
–the import and export of services
–investment income
•income receipts and income payments
CA - Income Receipts - ASSETS ABROAD AS CREDITS
-Income earned on assets held abroad.
-Examples include when a company’s subsidiary in a foreign country repatriates profits
back to the parent or when individual domestic investors receive dividend payments from
foreign companies.
-Recorded as credits on the current account.
CA - Income Payments - LIABILITIES ABROAD AS DEBITS (ex: DIV
PAYMENTS)
-Income paid to entities in other nations that is earned on assets they hold in the country.
-Examples include when a foreign-owned subsidiary repatriates profits back to its parent
firm or when a domestic company makes dividend payments to foreign holders of the
company’s stock.
-Recorded as debits on the current account.
Capital Account – ONE TIME CHANGES IN STOCK OF ASSETS
-The capital account is used to track one-time changes in the stock of assets, such as debt
forgiveness and migrant transfers.
-This capital account is small for the United States and for many other countries.
Financial Account: PURCHASE OR SALES OF ASSETS
The financial account records transactions involving the purchase or sale of assets,
including stocks, bonds, real estate, and corporations.
Merchandise Goods versus Services
Income Receipts - INFLOWS
Income Payments - OUTFLOWS
Repatriation of Earnings – CORP MONEY AND PROPERTY BACK TO ITS
COUNTRY
The transfer of corporate money or property from a foreign country back to its home
country. Dome foreign companies restrict this to avoid drain of capital or exploitation.
Statistical Discrepancy – GDP – GDP INCOME //
Difference between demand and supply in national accounts. The official adjustment
factor in the National Income and Product Accounts that ensures equality between the
income and expenditures approaches to measuring gross domestic product.
Merchandise Trade Deficits – IMPORT > EXPORT
Total value of imported goods greater than exported.
Current Account Deficits – NEGATIVE NET SALES ABROAD
A country is said to have a trade surplus if its exports exceed its imports, and a
trade deficit if its imports exceed its exports. Positive net sales abroad generally
contribute to a current account surplus; negative net sales abroad generally contribute to
a current account deficit.
Advantages and Disadvantages of the “Buy American” Clause – IRON & STEELIN
US REQUIREMENTS
Local Public Agency
Federal Aid Contract must use Buy American 2 provisions
Iron & Steel material manufacturing must be in U.S.
Free Trade versus Protectionism
Free Trade: Encourage Imports & Relocations
Protectionism: High Import Tariffs & Discourage Relocations
Strategic Trade Policy - RECIPROCITY
Government policy which attempts to shift excess profits in an oglipolistic internal
markets towards home country firms.
To adopt, with all foreign powers, the principle of reciprocity
Specific versus Ad Valorem Tariffs
Specific Tariffs – FIXED PER UNIT
Levied as a fixed charge for each unit.
Ad Valorem Tariffs PROPORTION OF VALUE
Levied as a proportion of the value of the good.
Subsidies – GOV PAYMENTS TO LOWER PRODUCTION COSTS
-Subsidies are government payments to domestic producers that lower production costs.
-Government subsidies may be direct payments or indirect support.
-Subsidies, especially agricultural subsidies, are controversial since they can result in
trade distortion.
Import Quotas – QUANITITY RESTRICTIONS
-Import quotas are restrictions on the quantity of a good to be imported into a country.
-Can be enacted by issuing import licenses to a limited number of firms.
Tariff Rate Quota – LOWER AMOUNT = LOWER TAX
With a tariff rate quota, a lower tariff rate is applied to imports within the quota than
those above the quota.
Voluntary Export Restraints – LIMIT ON CERTAIN EXPORTS DURING TIME
-Quota on trade imposed by exporting country, typically at the request of the importing
country.
-Countries agree to voluntary export restraints to avoid other trade actions.
Quota Rent – RIGHT TO IMPORT UNDER QUOTA
The economic rent received by the owner of the imported good that is subject to the
quota.
Export Tariffs and Bans
Export Tariffs: EXPORT TAX
A tax placed on the export of a good.
Export Bans: RESTRICTIONS OF EXPORT
A policy that partially or entirely restricts the export of a good.
Local Content Requirements – MUST USE PORTION OF LOCAL MATERIALS
-Local content requirements mandate that foreign producers use a certain amount of local
materials in their domestic production.
-May pertain to a percentage of component parts or a percentage of the total value of the
good.
-Used by developing nations to promote economic development and by developed
economies to protect domestic producers.
Administrative Trade Policies – USED TO RESTRICT IMPORTS OR BOOST
EXPORTS
-Administrative trade policies are bureaucratic rules that make it difficult for imports to
enter a country.
-These seemingly neutral policies have either the intent or the consequence of making it
more difficult for foreign firms to do business in the country.
Dumping and Antidumping Policies
Dumping: SELLING BELOW MARKET VALUE
Product dumping is selling a good below production costs or below fair market value.
Antidumping Policies: INCREASE PRICE OF FOREIGN GOODS
-Antidumping policies are used to prevent foreign firms from selling goods too cheaply.
-Antidumping duties and countervailing duties are punitive duties used to increase the
price of foreign products.
Countervailing Duties – LEVEL THE PLAYING FIELD
Trade import duties imposed under WTO rules to neutralize the negative effects of
subsidies. Also prevents dumping.
Trade Distortion – PRICE CEILINGS, PRICE FLOORS OR TAX SUBSIDIES
The political and economic arguments for intervention in international trade:
Political Arguments:
-Protecting Jobs and Industries
-National Security
-Retaliation
-Protecting Consumers
-Furthering Foreign Policy Objectives
-Protecting Human Rights
Economic Arguments:
-Infant Industry
-Strategic Trade Policy
Infant Industry Argument – ECONOMIES OF SCALE ARGUMENT
The core of the argument is that nascent industries often do not have the economies of
scale that their older competitors from other countries may have, and thus need to be
protected until they can attain similar economies of scale.
Smoot-Hawley Act – TARIFF CAUSED BY GREAT DEP TO PROTECT
AMERICAN BUSINESSESS AND FARMERS
Tariff that raised import duties to protect American businesses and farmers, adding
considerable strain to the international economic climate of the Great Depression.
It increased 900 import tariffs by an average of 40 to 48 percent. Most economists blame
it for worsening the Great Depression. It also contributed to the start of World War II.
Trade Wars and Retaliation
World Trade Organization (Ch 1?) – ORGANIZATION FOR NEGOTIATION &
SETTLING DISPUTES
-It’s a set of rules.
-It’s a negotiating forum.
-It’s a forum for settling disputes.
Principles of the World Trade Organization – NO DISCRIMINATION
-Trade without Discrimination
Most Favored Nation Policy
Treating other people equally under WTO agreements, countries cannot
normally discriminate between trading partners.
National Treatment: same treatment as their nationals
-Free Trade through Negotiation
-Ensuring Predictability
-Promoting Fair Competition
Accomplishments of the Uruguay Round of trade negotiations
Goals of and challenges with the Doha Round of trade negotiations
Cross-Retaliation
Presidential Fast Track
Most-Favored-Nation Policy
National Treatment
Special Safeguard Mechanisms
GATT Article 24 – REGION TRADE AFFECTING EVERYONE W NO IMPACT
TO OUTSIDE REGION
-GATT’s Article 24 allows regional trade arrangements if:
– an agreement impacts substantially all sectors of trade among the members
–and non-members are not exposed to more restrictive trade than before the
agreement.
Regional Economic Integration – PREFERRED TRADE ARRANGEMENTS TO
ELIMINATE TARRIF AND COORDINATE FINANCES
-Regional economic integration (REI) refers to preferential trading arrangements in
which member countries agree to coordinate their trade, fiscal, and/or monetary policies.
-Agreements seek to eliminate tariff and non-tariff barriers to the flow of goods, services,
and/or factors of production between member nations.
Levels of Economic Integration: Free Trade Area, Customs Union, Common
Market, Economic Union and Political Union
The case for and the case against regional integration
Impediments to Regional Integration
Trade Creation versus Trade Diversion
The European Union (EU) – 28 EUROPEAN COUNTRIES
-The EU is composed of 28 member countries and has approximately 510 million
inhabitants.
-The EU’s member states combined represents the world’s second largest economy by
GDP, the seventh largest territory by area and the third largest by population.
-The EU has 24 official languages and an operating budget of €145 billion.
Political Structure of the European Union:
European Commission, Council of the European Union, European Parliament and
Court of Justice
European Commiss ion: - EXECUTIVE INTERESTS OF EU
The Commission represents the interests of the EU as a whole and is the executive arm of
the EU.
Structure:
-Commissioners are nominated by their national governments to serve five-year
renewable terms and must be approved by the Parliament.
-There is one Commissioner per member state and each Commissioner has a specific
policy area of focus
European Parliament: - LEGISLATION OF EU
The Parliament represents the EU’s citizens and is the directly-elected legislative arm of
the EU.
Structure:
-Members are elected every five years by the people of the member nations.
-The number of seats per nation is based on population.
Court of Justice: JUDICIAL ARM OF EU
The Court of Justice is the judicial arm of the EU and it is the final arbiter in disputes
about EU law.
Structure:
-The Court ensures EU law is interpreted and applied in the same way in all EU
countries.
-The Court has one judge from each member country, who serve renewable terms of six
years.
-The Court of First Instance addresses cases related to competition law.
Euro Zone: Benefits and Costs of Using the Euro
Benefits:
-Lowers foreign exchange costs.
-Facilitates price comparisons.
-Fosters efficiency and cost reductions.
-Creates a pan-European capital market.
-Increases the range of investment options for individuals and institutions.
Costs:
-The European Central Bank (ECB) controls monetary policy for the euro zone.
-The EU is not an optimal currency area.
-The EU needs a stronger, centralized political structure.
Optimal Currency Area
The Euro-Zone Crisis
Contagion - WIDESPREAD CRISIS
The possibility of spread of economic crisis or boom across countries or regions.
Brexit
U.S.-Mexico-Canada Agreement (USMCA)
Articles:
Davis, B., & Hilsenrath, J. (2017, March 29). Whatever happened to free trade? Wall
Street Journal.
Arguments about globalization and the effect on poor countries vs. wealthy countries.
Seib, G. F. (2017, December 25). Both parties are deft at ignoring deficit. Wall Street
Journal.
“Starving of the beast” - Republicans want to diminish funds for social security and
medicare, Democrats are opposed.
The Federal Reserve Bank of San Francisco. (2004). U.S. monetary policy: An
introduction.
Timiraos, N. (2018, January 21). By adding to the debt, tax cuts could complicate next
downturn. Wall Street Journal.
Debate about tax code reforms, debt and economic recession. (Bad timing for a tax
reform due to concern of recession in the near future).
Craymer, L., Chiu, J., & Kubota, Y. (2018, May 10). Spoiled relations: U.S. goods stuck
at China ports as tensions heat up. Wall Street Journal.
Chinese inspections on U.S. imports (food, cars, ect.) are too long rigorous, causing trade
tensions. This results in higher storage costs and potential spoiling of food delivered from
the U.S.
Mann, T., & Mullins, B. (2017, February 13). ‘Buy America’ push tests steel industry.
Wall Street Journal.
“Buy America” rules complicate the use of steel U.S. steel mills. (Steel must be melted
down first to produce “American Made” steel, but U.S. mills have been using “slab
converters instead, which does not meet the requirements).
Pop, V. (2017, December 13). From German faucets to Italian chocolate, trade barriers
are rising again in Europe. Wall Street Journal.
Food and other product labeling regulations are negatively affecting the EU, complicating
trade within the EU single market. Exports from country to country have fallen greatly
due to these complications.
Peker, E., & Schlesinger, J. (2018, March 8). Trump tariff plan challenges trade system
U.S. helped build. Wall Street Journal.
“Trump’s tariffs on steel and aluminum challenges the WTO”. WTO challenges the U.S.
using WTO rules to exploit.
Schlesinger, J. M. (2017, November 1). How China swallowed the WTO. Wall Street
Journal.
China is overpowering other countries in the WTO in regards to trade exports, and other
countries are attempting to penalize China for that.
Talley, I., & Mauldin, W. (2017, March 1). Trump trade policy expected to seek smaller
WTO role in the U.S. Wall Street Journal.
“The Trump administration is developing a national trade policy that would seek to
diminish the influence of the World Trade Organization in the U.S.” U.S. may possibly
lead to a smaller WTO role in U.S.
Schechner, S., & Drozdiak, N. (2018, April 4). The woman who is reining in America’s
technology giants. Wall Street Journal.
Google and other U.S. tech company giants are being held under investigation for their
“dominance” in the technological world. Other countries are attempting to set up
“roadblocks” for Google to operate effectively there. (Margrethe Vestager leads this).
Schlesinger, J. M. (2018, October 1). U.S. and Canada reach Nafta deal. Wall Street
Journal.
Trumps negotiates to block imports from canada, china, and other countries, causing
them all to lose money, in an effort to make them cooperate with the U.S.
Readings:Wall Street Journal articles announced in Blackboard for the weeks of: January
6, January 13, January 20, January 27, February 3 and February 10.
