5. Key Vocabulary
Absolute advantage
When a country can produce more of a product than other countries using the same amount of resources. Example: if Brazil can grow more coffee per acre than any other country, it has an absolute advantage in coffee.
Balance of payments (BOP)
The big-picture record of all the money flowing in and out of a country. It includes trade in goods and services, but also foreign loans, investments, and aid. Ideally it balances out, but if a country consistently spends more than it earns (like the U.S. often does), it runs a deficit and has to borrow from foreign investors.
Balance of trade
The difference between how much a country exports (sells to other countries) and how much it imports (buys from other countries). If you export more than you import, you have a trade surplus. If you import more, you have a trade deficit.
Brexit
Short for “British exit.” The United Kingdom’s decision to leave the European Union in 2020, driven by debates over immigration and national independence.
Cell phone penetration
A measure of how common mobile phones are in a country, shown as a percentage of the population. A rate over 100% just means many people have more than one phone or SIM card. Example: Papua New Guinea sits at about 47%, meaning less than half the population has a mobile connection.
Common market
A deeper version of a trading bloc where member countries not only trade freely but also allow people, money, and businesses to move freely across borders, and share one set of trade rules with the outside world.
Comparative advantage
When a country can produce a product at a lower opportunity cost than other countries. The idea behind free trade is that everyone benefits when countries focus on what they do most efficiently, even if another country could technically do it better.
Countertrade
International trade that involves the barter of products for products rather than for currency when customers don’t have the access to hard currency or credit.
Embargo
A complete ban on international trade of a certain item, or a total halt in trade with a particular nation.
Exchange Rate
A measurement of the value of one nation’s currency relative to the currency of other nations. Affected by many factors – listed here.
Exporting
Selling products in foreign nations that have been produced or grown domestically.
European Union (EU)
A group of 27 European countries that function as a single market, sharing one currency (the euro) and one set of trade policies. It is the world’s largest common market with a GDP of about $15 trillion.
Free Trade
The unrestricted movement of goods and services across international borders.
Foreign Direct Investing
When firms either acquire foreign firms or develop new facilities from the ground up in foreign countries.
Foreign Franchising
When a company allows a foreign business to operate using its brand, business model, and systems, following strict rules.
Foreign Licensing
When a company lets a foreign company use its product, brand, or technology for a fee or royalty.
Foreign Outsourcing
Contracting with foreign suppliers to produce products, usually at a fraction of the cost of domestic production
Free trade
When countries buy and sell goods with each other freely, with no extra taxes, limits, or government barriers getting in the way.
GATT
General Agreement on Tariffs and Trade. A 1948 international treaty signed by 23 countries to encourage more open trade worldwide. Think of it as the original rulebook for global commerce.
IMF
International Monetary Fund. A 190-member organization that keeps the global economy stable by supporting exchange rates, encouraging good economic policies, and lending money to countries in financial trouble.
Importing
Buying products domestically that have been produced or grown in foreign nations
Joint Ventures
When two or more companies join forces (sharing resources, risks, and profits, but not actually merging companies) to pursue specific opportunities.
Opportunity cost
What you give up when you make a choice. For countries, if you use your land and workers to grow wheat, you can’t also use them to make cars. The value of what you gave up is your opportunity cost.
Partnership
A voluntary agreement under which two or more people act as co-owners of a business for profit.
Quota
A limit on how much of a product can be imported into a country during a given time period.
Tariff
A tax added to imported goods that makes them more expensive, often used to protect local businesses from foreign competition.
Trading bloc
A group of countries that agree to reduce or eliminate trade barriers among themselves, making it easier and cheaper to buy and sell with each other.
USMCA
United States-Mexico-Canada Agreement. The 2020 replacement for NAFTA that governs trade between the three North American countries.
Voluntary Export Restraints (VERs)
Limitations on the amount of specific products that one nation will export to another nation.
World Bank
An international cooperative of 189 countries that fights poverty in developing nations by offering low-interest loans and financial advice to governments.
WTO
World Trade Organization. A global body of 164 member countries that enforces trade rules, settles disputes between countries, and keeps international trade running smoothly.
