Glossary 525
T Three-point arbitrage A more intricate form of
arbitrage, involving three currencies and three financial
Target exchange rates Desired exchange rates for a centers; also called triangular arbitrage
currency set by the host country and supported by Tokyo Round Round of talks between GATT mem-
intervention bers from 1973–1979, in which signatory nations
Tariff A tax levied on a product when it crosses agreed to tariff cuts that took the across-the-board
national boundaries form initiated in the Kennedy Round
Tariff avoidance The legal utilization of the tariff Trade adjustment assistance Government assistance
system to one’s own advantage in order to reduce the granted to domestic workers displaced by increased
amount of tariff that is payable by means that are imports
within the law Trade balance Derived by computing the net exports
Tariff escalation Occurs when tariff structures of (imports) in the merchandise accounts; also called
industrialized nations are characterized by rising rates merchandise trade balance
that give greater protection to intermediate and fin- Trade promotion authority (also known as fast-
ished products than to primary commodities track authority) devised in 1974, this provision com-
Tariff evasion When individuals or firms evade tar- mits the U.S. Congress to consider trade agreements
iffs by illegal means such as smuggling imported goods without amendment; in return, the president must
into a country adhere to a specified timetable and several other
Tariff-rate quota A device that allows a specified procedures
number of goods to be imported at one tariff rate (the Trade remedy laws Laws designed to produce a fair
within-quota rate), and any imports above that speci- trading environment for all parties engaging in inter-
fied number to be imported at a higher tariff rate (the national business; these laws include the escape clause,
over-quota rate) countervailing duties, antidumping duties, and unfair
Technical analysis A method of exchange rate fore- trading practices
casting that involves the use of historical exchange rate Trade triangle An area in a production possibilities
data to estimate future values diagram showing a country’s exports, imports, and
Technology transfer The transfer to other nations of equilibrium terms of trade
knowledge and skills applied to how goods are Trade creation effect A welfare gain resulting from
produced increasing trade caused by the formation of a regional
Terms of trade The relative prices at which two trade bloc
products are traded in the marketplace Trade diversion effect A welfare loss resulting from
Terms-of-trade effect The tariff revenue extracted the formation of a regional trade bloc; it occurs when
from foreign producers in the form of a lower supply imports from a low cost supplier outside the trade bloc
price are replaced by purchases from a higher cost supplier
Theory of overlapping demands Nations with simi- within the trade bloc
lar per capita incomes will have overlapping demand Trade-weighted dollar A weighted average of
structures and will likely consume similar types of the exchange rates between a domestic currency
manufactured goods; wealthy nations will likely trade and the currencies of the nation’s most important trading
with other wealthy nations, and poor nations will likely partners, with weights given by relative importance of the
trade with other poor nations nation’s trade with each trade partner
Trading possibilities line A line in a production
Theory of reciprocal demand Relative demand possibilities diagram representing the equilibrium
conditions determine what the actual terms of trade terms-of-trade ratio
will be within the outer limits of the terms of trade
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526 Glossary
Transfer pricing A technique where an MNE reports V
most of its profits in a low tax country, even though the
profits are earned in a high tax country Variable levies An import tariff that increases or
Transplants The assembly plants of Japanese com- decreases as domestic or world prices change to guar-
panies that produce automobiles in the United States antee that the price of the imported product after
Transportation costs The costs of moving goods payment of duty will equal a predetermined price
from one nation to another Vertical integration In the case of an MNE,
Two-point arbitrage The simultaneous purchase occurs when the parent MNE decides to establish
and sale of a currency in two foreign exchange markets foreign subsidiaries to produce intermediate goods or
in order to profit from exchange rate differentials in inputs that go into the production of the finished
different locations good
U W
Uncovered interest arbitrage When an investor Wage and price controls Intervention by the
does not obtain exchange market cover to protect government to set price and wage levels
investment proceeds from foreign currency fluctuations World Bank An international organization that
Unilateral transfers Include transfers of goods and provides loans to developing countries aimed
services (gifts in kind) or financial assets (money gifts) toward poverty reduction and economic
between the United States and the rest of the world development
Uruguay Round Round of talks between GATT World Trade Organization (WTO) Organization
members from 1986–1993 in which across-the-board that embodies the main provisions of GATT, but its
tariff cuts for industrial countries averaged 40 percent role was expanded to include a mechanism intended to
improve GATT’s process for resolving trade disputes
among member nations
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Index
A Anheuser-Busch (A-B), 299–302
Anti-dumping
ABC Electronics Co., 116
Abe, Shinzo, 366, 386 currency fluctuations and, 171
Absolute advantage, 30–31, 34 defined, 166
Absolute disadvantage, smaller, 34 duties for, 202–207
Absolute quota overusing, 171–172
regulations on, 166–169
defined, 149 unfairness of, 169–172
on imports, 149–154 washing machine tariffs and, 168–169
licenses for, 152–153 Washington apple producers and, 169
tariff vs., 153–154 World Trade Organization and, 171
trade and welfare effects of, 150–152 Apple Inc., 19, 60–61, 63, 96, 252, 342
Absorption approach, 433, 441–442 iPhone and, 342
Accounting, double entry, 329–331 outsourcing by, 6, 60–61
Adjustable pegged exchange rates, 452 taxes and, 317
Adjustment mechanism, 419 Apple industry, 159
Ad valorem (of value) tariff, 109 Appreciation, 452
Advanced nations of currency, 430–432, 459
agricultural export subsidies of, 235 defined, 365
defined, 227 of dollar, 2, 378, 428–429, 437
developing nations and, tensions between, 229 of franc, 429
tariffs of, 115, 234 of Yen, 2, 431–432
Affordable Footwear Act, 131 Arbitrage, 373–374
AFL-CIO, 144 interest, 382–384
Agglomeration economies, 5 three-point, 374
Aggregate demand curve, 480–481 two-point, 374
Aggregate supply curve, 480–481 Argentina, 250, 474–475
Agriculture, governmental support for, 279 Asian financial crisis of 1997–1998, 466
Airbus, 8, 97–98, 218 Asset market approach, 404–410. See also Short run
Aircraft production, 71
Allende, Salvador, 315 exchange rate
Amazon Kindle, 19 Assets, 332, 335
American Auto Company of the United AT&T, 59
Autarky, 36
States, 309–310 Automatic adjustment, 419–420
American Feed Co., 432 Automatic international adjustment, disadvantages
American Iron and Steel Institute, 100
American Standard Brands, 64 of, 424–425
527
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528 Index
Automobile industry Bechtel, 307
foreign, 160 Beggar-thy-neighbor policies, 129, 139
in United States, 75, 160, 305–307 Benelux, 269
Bid rate, 362
Average variable cost, 170 Big Mac index, 399
Bilateral balance, 54
B Binding commitments, 187
BMX racing, 16
Backward integration, 296 Boeing Co., 8, 97–99, 210, 214–215, 369
Baht, 469
Balance Eximbank and, 214
foreign exchange and, 375
bilateral, 54 outsourcing and, 7
external, 479 outsourcing by, 62
goods and services, 331, 338 Bonded warehouse, 119
income, 332 Borrowing/borrowed reserves, 499, 504
internal, 479 facilities for, 504–505
merchandise trade, 331, 337 general arrangements for, 504–505
overall, 479 IMF drawings and, 504
partial, 337 swap arrangements for, 505
trade, 337 Boston Red Sox, 39
Balance-of-payments, 329–355 Brain drain, 320–321
capital and financial account of, 332–334 Brazil
current account of, 331–332, 339–348 import substitution and, 250–252
defined, 329 manufacturing industry in, 5
dollar as reserve currency and, 351–353 trade polices of, 263–264
double entry accounting and, 329–331 Brazil, Russia, India, and China (BRIC), 197. See also
exchange rate adjustments and, 427–444 (See also
individual countries
Foreign sourcing) Bretton Woods system of fixed exchange
international indebtedness and, balance of, 348–350
International Monetary Fund and, 495 rates, 452, 503–504
monetary approach to the, 425 British Airways, 262
official settlement transactions and, 334–335 British Treasury bills, 383
special drawing rights and, 335–336 Brokers, foreign exchange, 358
statistical discrepancy (errors and omissions) Buchanan, Patrick, 192
Budweiser, 299–301
and, 336 Buffer stock, 237–238
structure of, 331–336 Burger King, 280
temporary, 496 Bush, George W., 19–20
in United States, 337–339 Business Week, 141
Banco Delta Asia, 222 Buy–American Act, 172–173
Bangladesh, 6, 235–236 Buy–national policies, 172
Bank/banking
claims and, 334 C
commercial, 12, 387–388
in developing nations, 508–509 Cage, Nicolas, 389
Bankers Trust Company, 385 Caldwell, James, 52
Bank of America, 357–358, 362, 375, 378, 388, 412 California Transit Authority, 173
Bank of Canada, 482, 485 Call option, 368
Bank of England, 495 Calvin Klein, 137, 440
Bank of Japan, 461, 463, 491 Canada
Barter terms of trade, 42
BASF, 382 gross domestic product of, 482–486
Basis for trade, 29 locomotive workers in, 311–312
Basket of currencies, 449–450 recession in, 487
Bastiat, Frederic, 142 trade and, 18, 50
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Index 529
trucking system regulations of, 288–289 software piracy in, 210–212
Washington apple producers and, 169 Target and, 260
Canadian Auto Workers (CAW), 311 tariffs on, 130–131
Canadian Business, 141 textile production in, 71, 200–201
Candle industry, 142 trade polices of, 257–261
Capital account, 332, 423 wages in, 74–75
Capital controls, 470–472 World Trade Organization and, 20
Capitalism, 256 Yuan of, 74–75, 260
Capital/labor ratio, 70 Chiquita Brands International, 208
Capital stock, 71 Chrysler, 75, 87
Captain Kangaroo, 16 corporate average fuel economy standards for, 174
Carbon tariff, 203 global economic crisis and, 466
Carpet industry, 88 Cia.Vale do Rio Doce, 232
Cartel, 240–242 Cigarettes, 19–20
Casio (of Japan), 95 Citibank, 362–363, 375, 388
Caterpillar Inc., 63, 99, 120, 133, 173 Citigroup Inc., 412
Eximbank and, 214 Civil War, 182
pass-through exchange rate and, 438 Classical economics, 32
Catfish industry, 167 Clean Air Act, 191
Cato Institute, 345 Clean float, 457
Center for Global Development, 248 Climate problems, 203
Central banks, foreign exchange traders for, 387–388 Cline, William, 83
Central Intelligence Agency, 409 Clinton, Bill, 20, 80
Chapter 11 bankruptcy, 15–16 Closed economy, 481–483
Charles Schwab, 388 CMC (British), 388
Chase Manhattan Bank, 303 Coach, 134
Chevrolet, 92 Coast Guard, 175–176
Chicago Bulls, 490 Coca-Cola, 296, 299, 399
Chicago Mercantile Exchange, 366 Coffee farmers, 239–240
China/Chinese Colombia, 18
aircraft production in, 71 Commercial Aircraft Corporation of China
Boeing and, 313–314
currency manipulation in, 464–465 (Comac), 314
economy of, challenges for, 258–260 Commercial banking, 12, 387–388
environmental future of, 259 Commodity Credit Corporation (CCC), 214
exporting from, 196, 260–261 Commodity terms of trade, 42, 43
factor endowments in, 71 Common agricultural policy, 276
forestry products of, 114 Common currency
General Electric and, 313
global finance in, 260 adopting, 279
gross domestic product of, 409 economic costs and benefits of, 280–284
Home Depot and, 260 in European Monetary Union, 280–284
infrastructure of, 258–259 Common market, 269
intellectual property rights in, 208, 211 Companhia Suzano del Papel e Celulose, 508
investment spending in, 259 Comparative advantage, 69–106
labor costs in, 258 changing, 45–46
manufacturing in, 5, 74–75, 260–261 dynamic, 96–97
merchandise trade and, 74 economies of scale as source of, 85–88
nominal and effective tariff rates of, 114 empirical evidence on, 56–57
outsourcing and, 7 exit barriers and, 55–56
privatization of industry in, 258 extension of, 53–55
rare earth metals of, 195–197 factor endowments as source of, 69–83
raw materials of, 196 globalization and, 52–53
global supply chains and, 57–64
government regulatory policies and, 99–101
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530 Index
government subsidies and, 97–98 Costs
in international trade, 33 average variable, 170
intra-industry trade and, 90–92 constant, 36–43
for Japan, 54 constant opportunity, 35–37
law of, 13 differences in, 30
principle of, 32, 39 exchange rate adjustments, effects of, 427–430
skill as source of, 84–85 increasing, 46–51
technology as source of, 92–96 increasing opportunity, 46, 50
theory of overlapping demands and, 88–90 of labor, 57, 138
trading and, 31–35 of living, 133
transportation costs and, 101–104 manufacturer strategies for cutting, 430–432
for United States, 34, 54 opportunity, 36
Compensation relative, 37
controls on, 488 transportation, 91, 101–104
in dollar, 137
inequality of, 82 Countervailing duties, 201–202
in manufacturing industry, 78, 137, 138 Country risk, 506
in United States, 137, 138
Competition analysis of, 302–305
effect of, 312 defined, 304
globalization and, 15–18 Covered interest arbitrage, 383, 384
greater, 273 Cows, 174–175
imperfect, 217 Crawling peg approach, 462
market, 298 Credibility of fixed exchange rate systems, 472–476
perfect, 218 Credit risk, 505
Complete specialization, 40 Credit transaction, 329
Compound tariff, 109 Cross exchange rate, 365
Compromise Tariff, 182 Crowding in open economy, 492
Computer manufacturing, 7 Currency board, 472
Conditionality, 507–508 Currency/currencies. See also Reserve currencies
Conflict, as source of multinational appreciation of, 430–432, 459
basket of, 449–450
enterprise, 310–316 common, 280–284
Conglomerate integration, 297 crashes of, 467
Conoco, 243 crises/wars with, 462–470
Constant-cost conditions, trade/trading under, 36–43 fluctuations in, 379
Constant opportunity costs, 35–37 forecasting, 412
Consumer Product Safety Commission, 99, 101 foreign, 368–369, 499–500
Consumer surplus, 122, 122–125 futures, foreign, 367
Consumption effect, 125, 127, 151, 272 key, 448–449, 499
Consumption gains, 38, 50 manipulation of, 462–465
Contractionary monetary policy, 459 national, 499
Controladora Comercial Mexicana SAB (Comercial policy on, 463
reserve, 499
Mexicana), 415 risks of, 381–384, 506
Convergence criteria, 276 single, 449
Cooper Tire and Rubber Co., 130 speculators of, 386
Coppola, Francis Ford, 389 swap of, 360
Coppola, Marc, 389 Currency depreciation, 385, 441, 459
Copyrights, 209 absorption approach to, 441–442
Corn Laws, 32 flowchart of, 436
Corporate average fuel economy standards monetary approach to, 442–443
time path of, 436–438
(CAFÉ), 174 trade deficit and, 433–436
Cost-based definition, 166 Currency Trading, 410
Cost-insurance-freight (CIF) valuation, 110–111
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Index 531
Current account Developing nations
adjustment of, 421–422 advanced nations and, tensions between, 229
balance of, 340 aiding, 244–250
surplus of, 340 bank/banking in, 508–509
commodity pricing and, 232
Current account deficit, 339–348 defined, 227
business cycles and, 343–344 export price instability for, 231
capital flows and, 340–341 generalized system of preferences and, 247–248
defined, 339–340 globalization in, 5–6
economic growth and, 343–344 growth of, 248
net foreign investment and, 340 International Monetary Fund and, 246–247
problems with, 341–343 liberalized economy of, 248–250
United States and, 344–348 limited access of, 233–235
primary products, dependence on, 230
Customs union, 269, 271 sweatshops in, 235–236
tariffs of, 115, 234
D trade polices of, 227–265
trade with, 227–236
Dalton, Georgia, 88 unstability of, 230–231
Datsun, 298
Deadweight loss, 126, 151 Dickens, Charles, 208
Debit transactions, 329 Diesel, Rudolf, 8
Debt Diesel engines, 8
Differentiated products, 91–92
buyback, 508 Direct controls, 480
federal, 132 Direct investment, 334
forgiveness of, 509
international, 506–508 foreign, 244, 300, 302, 381
reduction of, 508–509 United States and, 297
Debt-for-debt swaps, 508 Dirty float, 457
Debt service/export ratio, 507 Discipline of the gold standard, 501
Decision lags, 437 Discount, 375
Deficit, 339, 343–344. See also Current account deficit Disney, 260
Degree of exchange rate flexibility, 496 Distribution of income, 320
Delivery lags, 437 Doha Round, 189, 197
Dell Inc., 61, 111–114 Dole Food Co., 208
outsourcing by, 6 Dollar. See U.S. dollar
transfer pricing and, 316 Dollar glut, 500
Delta Airlines, 214–215 Dollar-gold system, 502
Demand Dollarization, 475–476
aggregate, 481 Dollar shortage era, 500
elasticity of, 433 Domestic content requirements, 158–159
for international reserves, 496, 497 Domestic exports, 129
theory of overlapping, 88 Domestic manufacturers, 158–160
theory of reciprocal, 41 Domestic production, 161, 299–302
Demand-pull inflation, 488 Domestic revenue effect, 128
Demonetization of gold, 502 Domestic standard of living, 139
Demonstration effect, 312 Double entry accounting, 329–331
Depreciation, 452. See also Currency depreciation Downstream industry, 204
defined, 365 Dubrinski, Ivan, 118
of dollar, 378, 437 Dumping, 163–166. See also Anti-dumping
of pound, 434 average variable cost and, 170–171
of Yen, 366 defined, 163
Destabilizing speculation, 387 excess capacity and, 170
Deutsche Bank, 389 foreign, 202–207
Devaluation, 452
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532 Index
forms of, 163–164 tariff barriers vs. growth of, 14
imports, remedies against, 204–206 unemployment in, 442
of imports, 205 Ecuador, 475–476
international price discrimination and, 164–166 Eddie Bauer, 260
margin of, 159, 166 Education, 85
persistent, 164 Effect
predatory, 164 competition, 312
sporadic, 164 consumption, 125, 127, 151, 272
Dynamic comparative advantage, 96–97 demonstration, 312
Dynamic effects of economic integration, 270 domestic revenue, 128
Dynamic effects of regional trading arrangements, 273 of economic sanctions, 220
Dynamic gains from trade/trading, 43–45 foreign repercussion, 424
Dynamic-random-access-memory (DRAM), 46 home market, 87
income, 433
E J–curve, 436
magnification, 79
East Asia market power, 308
currency speculation in, 469–470 production, 272
economic growth rate of, 254 protective, 125, 127, 151, 162
economy of, 254–256 redistributive, 125, 127, 151
flying geese pattern of economic growth in, 255 revenue, 125, 127–128, 151
gross domestic product of, 254 safe-haven, 410
trade policies in, 254–256 static welfare, 271
terms-of-trade, 128
Eastman, George, 15 trade creation, 272
Eastman Kodak Company, 15, 380 Effective exchange rate, 371
EBS, 362 Effective rate
Economic interdependence, 1–2, 4 of protection, 113
Economic policy, 498 of tariffs, 111–114
Economic risk, 304 E-Ink Co., 19
Economics, classical, 32 Elasticity approach to reducing trade deficit, 433–436
Economic sanctions, 219 Elasticity of demand, 433
Economic Stimulus Act of 2008, 487 Element Electronics Inc., 15, 17–18
Economic stupidity, 183 Emerson Electric Co., 104
Economic union, 269 Employment, 287
Economist, 399 full, 442
Economy. See also Open economy protection, 136
trade and, impact of, 52
agglomeration, 5 Enterprise, defined, 295
closed, 481–483 Environmental Protection Agency (EPA), 99–100, 191
common currency in, 280–284 Equation of exchange, 420
of East Asia, 254–256 Equilibrium exchange rate, 411
flying geese pattern of growth in, 255 Escape clause, 199–201
foreign direct investment and development of, 244 Euro, 1, 275, 358
global, fall of, 112 Eurodollar, 510
global crises in, 466 Eurodollar market, 510
globalization of activity within, 2–3 Europe, nontariff trade barriers in, 174–175
growth rate of, 254 European Central Bank, 275, 280, 283, 491
growth strategies for, 250–254 European Monetary Union (EMU)
integration into, 268–270 challenges of, 281–283
of protectionism, 142–145 common currency in, 280–284
sanctions on, 219–222 defined, 275
of scale, 85–88, 92, 273, 286 disunion of, 282
socialist market, 257
static view of, 30
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Index 533
optimum currency area in, 280–281 Exchange rate adjustments
problems of, 281–283 balance-of-payments and, 427–444 (See also Foreign
regional trading arrangements and, 280–284 sourcing)
survival of, 283–284 pass-through, 438–441
European Union (EU), 267
agricultural policy of, 276–278 Exchange rate index, 371–373
as common market, 278–280 Exchange rate policy, 445
defined, 269 Exchange rate systems, 445–478
economic integration in, 275–276
export subsidies of, 278 capital controls and, 470–472
formation of, 1 choosing, 446, 447–448
international economic organization and, 498 crawling peg approach and, 462
regional trading arrangements and, 274–280 currency crises and, 465–470
tariffs and, 233 currency manipulation and, 462–465
variable levies system of, 277–278 fixed, 448–453
Eurozone, 276. See also European Monetary Union (EMU) floating, 453–456
Excess capacity, 170 practices for, 445–447
Exchange Exchange stabilization fund, 450
arbitrage, 374 Eximbank, 213–214
control of, 470 Exit barriers, 55–56
equation of, 420 Expansionary monetary policy, 459
Exchange rate, 363–364, 393–418 Expenditure changing policies, 480
adjustable pegged, 452 Expenditure switching policies, 480
arrangements for, 446 Export Enhancement Program, 163
cross, 365 Export oriented policy, 252
degree of flexibility of, 496 Exports/exporting/exporters
determining, 370 China, restrictions of, 196
of dollar, 396–397, 404–405 controls on, 237
effective, 371 dependence on, 145
equilibrium, 411 direct, 300
factors for determining, 393–395 (See also Foreign dollar and, 440
domestic, 129
exchange) foreign, subsidies on, 201–202
fixed, 448, 503–504 gross domestic product and, 10
flexibility of, 497 growth through, 250–254
floating, 453 of Japan, 57
forecasting, 412, 413 price instability of, 231
foreign, 411–415 quotas for, 156–158
forward, 376 subsidies on, 161, 276
inflation differentials and, 401 tariffs on, 108, 132–134
interest rate differentials and, 407 of United States, 57, 91
J.P. Morgan Chase & Co. and, 415 External balance, 479
long run, 394, 395–398 External economies of scale, 87–88
medium run, 394 ExxonMobil, 47, 120, 243, 297, 380
nominal, 372
official, 450 F
overshooting, 410–411
pass-through, 438, 439 Factor-endowment theory, 72
of pound, 404 in China, 71
short run, 394, 404–410 as comparative advantage, 69–83
stabilization of, 451, 459 defined, 70
stable, 276 trade patterns, as good predictor of, 83–84
target, 457 for United States-China trade, 71, 73–74
of Yen, 395, 414 visualizing, 72–73
Factor-price equalization, 76–78
Falling (rising) dollar, 388
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534 Index
Fast track authority, 198 Flying geese pattern of economic growth, 255
Favorable trade balance, 29 Folgers, 240
Federal debt and tariffs, 132 Ford, Henry, 183
Federal Deposit Insurance Corporation, 510 Ford Motor Company, 6, 51, 60, 63, 75, 87, 92
Federal Reserve Bank of Dallas, 136
Federal Reserve Bank of New York, 345 corporate average fuel economy standards for, 174
Federal reserve policy, 4 currency fluctuations for, 379
Financial account, 332, 423 Fordney–McCumber Tariff, 183
Financial crises, 466 Forecasting exchange rates, 412–413
Financial inflow, 334, 422–423 Foreign automobiles, 160
Financial outflow, 334, 422 Foreign buyers, products/production to, 299–302
Financial risk, 303–304 Foreign currency, 499–500
Financial sanctions, 219 futures, 367
Finished product, 112 options for, 368–369
First wave of globalization, 4–5 trading, 389
Fiscal policy Foreign direct investment, 300, 302
cost factors for, 298–299
in closed economy, 481–483 currency risk and, 381
defined, 480 defined, 297
effectiveness of, 484 demand factors for, 298
gross domestic product and, 483 direct exporting vs., 300–301
in open economy, 483–486 economic development and, 244
recession and, 487 licensing vs., 301–302
Fiscal stimulus of United States, 173 motives for, 297–299
Fixed exchange rate systems, 448–453 Organization of Petroleum Exporting Countries and, 12
advantages of, 456 Foreign dumping
Bretton Woods system of, 452–453, 503–504 protection against, 202–207
credibility of, increasing, 472–476 remedies against, 204–206
currency board and, 472–475 steel and, 206–207
defined, 448 Foreign exchange, 357–392. See also Foreign exchange market
devaluation and, 452 arbitrage and, 373–374
disadvantages of, 456 Boeing and, 375
dollarization and, 475–476 brokers for, 358
exchange rate stabilization and, 450–451 demand for, 369
fiscal policy under, 484–485 dollar, value of, 371–373
International Monetary Fund and, 501 equilibrium rate of, 370–371
monetary policy under, 484–485 foreign currency options and, 368–369
official exchange rate and, 450 forward market and, 374–381
par value and, 450 interbank trading and, 361–363
revaluation and, 452 supply of, 369–370
stabilized exchange rate in, 451 Walmart and, 375
using, 448–450 Foreign exchange market, 357–359
“Flat world,” 89 banks/banking in, 362
Flexible exchange rates, 453, 497 defined, 357
Floating exchange rate systems, 453–456 destabilizing speculation and, 387
advantages of, 455–456 forward, 366–368
defined, 453 futures, 366–368
disadvantages of, 455–456 long position in, 385
employment and, 455 New Zealand dollar and, 385
fiscal policy under, 486 People’s Bank of China and, 386
managed, 456–461 short position in, 385
market equilibrium and, 454–455 speculation and, 384–387
monetary policy under, 486 stabilizing speculation and, 386–387
trade restrictions and, 455 Yen and, 385–386
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Index 535
Foreign exchange quotations, 363–366 Futures market, 366–368, 374–381
Foreign exchange rate FX Solutions, 389
forecasting, 411–415 G
fundamental analysis of, 414–415
normal, 371–373 Gain Capital Group, 389
real, 371–373 Gains
Foreign exchange reserves, 449
Foreign exchange trading, 387–389 from constant opportunity costs, 37
Foreign exchange transactions, 359–361 consumption, 38, 50
Foreign export subsidies, 201–202 import tariffs, from eliminating, 118
Foreign investment, 306, 422 from increasing opportunity costs, 50
Foreign labor, protection against cheap, 136–139 from international trade, 29
Foreign liabilities of United States, 336 production, 37, 50, 308–309
Foreign repercussion effect, 424 from specialization, 37, 50
Foreign securities, 346 static, 37
Foreign sourcing, 428–430 from trade, 37, 50
Foreign tax credits, 317 welfare, 308
Foreign trade zone (FTZ), 119–120 Gap, 236
Forestry products of China, 114 Gas turbines, 8
Forex Capital Markets (FXCM), 389 Gateway, 6
Forward contract, 367 Gehrig, Lou, 39
Forward exchange rates, 376 Geithner, Timothy, 464
Forward foreign exchange contract, 377–378 General Agreement on Tariffs and Trade
Forward market, 366–368, 374–381
defined, 366 (GATT), 185–189, 267
foreign currency hedging and, 380–381 defined, 185
foreign exchange risk management and, 377–380 freer trade promotion, 186–187
forward rate and, 375–377 multilateral trade negotiations and, 187–189
spot rate and, 376–377 negotiating rounds with, 188
Forward rate, 375 predictability and, 187
Forward transaction, 360 trade without discrimination, 185–186
Franc, 357, 362–365, 374, 400 General Arrangements to Borrow, 504–505
appreciation of, 429 General Electric Co., 63, 120, 210, 312–313
costs and, 428–430 currency fluctuations for, 379
Free capital flows, 447–448 economies of scale and, 286
Free-on-board (FOB) valuation, 110 Eximbank and, 214
Free trade, 9, 19–20, 30 foreign currency trading and, 389
area of, 269 India and, 262
argument for, 135 Generalized system of preferences (GSP), 247
fruits of, 9 General Motors (GM), 13, 75, 87, 92, 312
under increasing cost conditions, 102 corporate average fuel economy standards for, 174
Free trade agreement economies of scale and, 286
with Mexico, 285 foreign investment and, 422
with South Korea, 274 global economic crisis and, 466
with United States, 274, 285 subsidies of, 298
Free-trade–biased sector, 143 Global economic crisis, 466
Freight regulations, 175–176 Global economy, fall of, 112
Fuji Photo Film Co., 15 Global financial crisis of 2007–2009, 466
Full employment, 442 Global imbalances, 350
Fundamental analysis, 414 Global Insights, 412
Fundamental disequilibrium, 451, 453 Globalization
Future profits, 298 advantages of, 23
Futures contract, 367 backlash against, 22–23
comparative advantage and, 52–53
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536 Index
competition and, 15–18 of China, 409
defined, 2 of East Asia, 254
in developing nations, 5–6 exports and imports as percentage of, 10
diesel engines and gas turbines as movers of, 8 fiscal policy and, 483
disadvantages of, 23 international, 409
of economy, 2–3 international trade and, 9
forces driving, 3 of Mexico, 285
importance of, 12–15 monetary policy and, 483
intellectual property rights and, 210 Group of Five (G–5), 491
international banking and, 12 Group of Seven (G–7), 492
United States automobile industry and, 75 Group of Ten, 505
waves of, 3–8 Growth oriented aid, 248
white collar, 7 G-20 Summit on Financial Markets, 130, 466–467
Wooster, Ohio bears the brunt of, 52–53 Guest workers, 321
Global production of iPhone, 342
Global quota, 150 H
Global recession of 2007–2009, 1
Global supply chains, 57–64 Hamilton, Alexander, 181
defined, 58 Heckscher, Eli, 70
iPhone economy and, 60–61 Heckscher-Ohlin theory, 70, 261
Global trading system, 181 Hedging, 377, 382–384
Global Value Fund, 381 Hewlett-Packard (HP), 6–7, 61, 95
Gold, 500–503 Hitachi of Japan, 90, 430
demonetization of, 502–503 Home buyers, 202
exchange standard for, 501–502 Home Depot, 260, 359
international standard for, 501, 503 Home market effect, 87
United States and, 503 Homogeneous goods, 91
Goldman Sachs, 263, 412 Honda Motor Company, 51, 59, 75, 92–93, 117, 158, 366
Gold Reserve Act, 501 Honeywell, Inc., 307
Gold Standard, 420, 463, 500–501 Hoover, President, 183
Golub, Stephen, 56 Horizontal integration, 296
Goods and services balance, 331, 338 Hormone-treated beef in United States, 174–175
Goodyear Tire and Rubber Co., 130 House Ways and Means Committee, 184
Google, 63 Hume, David, 30, 420
Government Hungary, 6
agriculture, support for, 279
comparative advantage and, 97–101 I
illegal subsidies and, 97–98
international trade taxes, revenues from, 108 IKEA, 63, 279
national, relationships between, 489 Illegal Immigration Reform and Immigrant Responsibility
policies of, 299
procurement policies of, 172–173 Act of 1996, 323
regulatory policies and, 99–101 Illegal subsidies and government, 97–98
on trade, regulations of, 100 IMF drawings, 504
transfers and, 332 IMF Fund, 498
Great Depression, 4, 16, 112, 129, 172, 183, 184, 190, 245, Immediate delivery, 359–360
Immigration, 320–322
463, 479, 499, 501
Greater absolute advantage, 34 in Canada, 322–323
Greater competition, 273 in United States, 6, 318, 323
Great Recession of 2007–2009, 59, 75, 112, 190, 256, 463 Immigration Act of 1924, 316
Greenspan, Alan, 503 Immigration and Naturalization Service, 323
Gross domestic product (GDP), 287 Immigration Reform and Control Act of 1986, 323
Imperfect competition, 217
of Canada, 482–486 Importance of being unimportant, 42
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Index 537
Imports Interbank trading, 361–363
absolute quota on, 149–154 Interest arbitrage, 382–384
bicycle, 16–17
dollar and, 440 covered, 383–384
dumped, 205 uncovered, 382–383
exchange rate pass-through of, 439 Interest rates
gross domestic product and, 10 differentials of, 407, 422–423
licenses on, 150 equalization tax on, 423
subsidized, 205 low long term, 276
substitution and, 250–254 nominal, 405–406
of textiles, 200–201 real, 406
of United States, 85, 91 Inter-industry specialization, 90
Inter-industry trade, 90
Import tariffs, 108, 118, 129, 186 Internal balance, 479
dodging, 116–119 Internal economies of scale, 86–87
income distribution effects of, 134–135 International adjustment, 419–426
postponing, 119–121 automatic, 424–425
income, 423–424
Impossible trinity, 447 interest rate differentials and, 422–423
Income mechanisms of, 419–426
monetary, 425
adjustments of, 423–424 price, 420–422
balance of, 332 International Bank for Reconstruction and
distribution of, 320
effects of, 433 Development, 245
Increasing-cost conditions, trade/trading International banking, 495–512. See also Debt;
under, 46–51, 102 International reserves
Increasing opportunity costs, 46, 50 Eurodollar market and, 510
India foreign currencies and, 499–500
globalization and, 12
General Electric and, 262 gold and, 500–503
manufacturing industry in, 5 lending risk and, 505–506
outsourcing and, 6–7 special drawing rights and, 503–504
trade polices of, 261–263 International Business Machines (IBM), 61, 90, 120, 330
Indonesia, 6 International Center for Settlement of Investment
Industrial policy, 96–97
of China, 215–216 Disputes, 245
defined, 96 International commodity agreements (ICAs), 237
of Japan, 216 International corporations, 296
of United States, 212–216 International Country Risk Guide, 304–305
Infant-industry argument, 140 International debt, 506–508
Inflation
demand-pull, 488 debt servicing problems and, 507–508
rates of, 398–403 Organization of Petroleum Exporting Countries and,
with unemployment, 488
Inflationary bias, 456 506–507
Inflow, 339 International Development Association, 245
Information Age, 6 International economic organization, 498
Innovation in United States, 19 International economic policy coordination, 488–492
Intel, 7, 46, 95
Intellectual property, 208–209 defined, 489
Intellectual property rights (IPRs), 208–212 International Monetary Fund and, 489
in China, 208, 211 Organization of Petroleum Exporting Countries and, 489
defined, 208 outcomes of, 491–492
globalization and, 210 theory of, 489–491
software piracy and, 210–212 International economy, 1–25. See also Globalization
Interbank FX, 389 free trade and, 19–20
international trade and, 18, 20–22
United States and, 9–12
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538 Index
International factor movements, 295–326. See also as opportunity, 20–22
Multinational enterprise (MNE) taxes on, 108
as threat, 20–22
country risk analysis and, 302–305 International Trade Commission, 167–169
foreign direct investment and, 297–299 International transaction, 329
international joint ventures and, 307–310 Intra-industry specialization, 90
international labor mobility and, 316–323 Intra-industry trade, 90–92
product supply to foreign buyers and, 299–302 Invacare Corporation, 14
in United States, 305–307 Inverted tariffs, 120
International Finance Corporation, 245 Investment
International gross domestic product, 409 direct, 334
International indebtedness, 348–350 foreign, 422
United States and, 349–350 foreign direct, 297
International investment, 349 international, 349
International joint ventures, 307–310 net foreign, 340
defined, 307 stimulus of, 273
welfare effects and, 308–310 iPad, 58, 96
International labor mobility, 316–323. See also iPhone, 19, 58, 61, 342
iPod, 58
Immigration; Migration Iran, 221–222
International lending risk, 505–506 Iranian revolution, 240
International Monetary Fund (IMF), 335 Iran Oil Investment Company, 307
Ireland, 6
balance of payments and, 495
conditionality and, 507–508 J
crawling peg and, 462
defined, 246 Japan/Japanese
establishment of, 245 automobile industry and, 157–158
exchange rate policy and, 445–446 comparative advantage for, 54
fixed exchange rates and, 501 electronic industry in, 95–96
foreign exchange reserves of, 449 exports of, 57
global financial crisis and, 466 global financial crisis and, 466
international economic policy coordination and, 489 industrial policies of, 216
Purchasing-Power-Parity and, 409 labor costs in, 57
special drawing rights and, 503–504 manufacturing in, 430–432
sweatshops and, 22 multilateral trade in, 55
International Monetary Market (IMM), 366–367 outsourcing and, 432
International payment process, 333 in United States automobile industry, 305–307
International price discrimination, 165 Yen of, currency appreciation of, 430–432
International production/products, 94–95, 299–302
International reserves, 496 J.C. Penny, 236
borrowing reserves and, 504–505 J-curve effect, 436–438
demand for, 496–499, 497 Jefferson, Thomas, 38
exchange rate flexibility of, 496–498 Jobs. See Employment
nature of, 495–496 John Deere, 99, 380
supply of, 499 Johnson, Lyndon, 117
International Telephone and Telegraph, 315 J.P. Morgan Chase & Co., 357–358, 359, 388, 412, 415
International Tin Agreement, 237–238 Judgmental forecasts, 412–413
International trade, 33, 108
comparative advantage in, 33 K
dynamic gains from, 43
fallacies of, 18 Kellogg Co., 279
gains from, 29 Kellwood Co., 440
gross domestic product and, 9 Kennedy Round, 187
migration, substitution for, 79–80
multinational enterprise and theory of, 305
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Index 539
Kentucky Fried Chicken, 301 Low long term interest rates, 276
Key currency, 448–449, 499 Lumbar duties, 202
KitchenAid, 168
Kohler Co., 64 M
Krieger, Andy, 385
Krone, 449 Maastricht Treaty, 275, 276
MacDougall, G.D.A., 56
L Macintosh, 60, 252
Maclean’s, 141
Labor Macroeconomic equilibrium, 481
costs of, 57, 138 Macroeconomic policy, 479–494
mobility of, 319
productivity and, 287 aggregate demand/supply curve and, 480–481
agreement vs. conflict in, 486–488
Labor theory of value, 30–31 in closed economy, 481–483
Labor unions, 99 inflation with unemployment and, 488
Large nation model of tariff welfare effects, 126–129 instruments for, 480
Law of comparative advantage, 13 international, 488–492
Law of one price, 399–400 objectives of, 479
Lawrence, Robert, 83 in open economy, 479–494, 483–486
Leaning against the wind, 457 Macys, 378
Lending by World Bank, 246 Magnification effect, 79
Lenin, Vladimir, 15 Mahathir, Prime Minister, 471
Lenovo, 63 Major currency index, 372
Leontief, Wassily, 84 Malaysia, 6
Leontief paradox, 84 Managed (stabilized) floating exchange rate systems, 456–
Less than fair value (LTFV), 166
Level playing field, 139, 169 461
Lever Style Inc., 74–75 defined, 457–458
Levi Strauss and Co., 137 effectiveness of, 461
LG, 168–169 in long run exchange rate, 457–459
Liabilities, 334 monetary policy and, 459–461
Licenses/licensing, 300, 302 in short run exchange rate, 457–459
Mansfield Plumbing Co., 64
on demand allocation, 155 Manufactured goods, 88
import, 150 Manufacturers Hanover Trust, 508–509
Linder, Staffan, 88–90 Manufacturing industry, 5–6
Liquidity problem, 500 compensation in, 78, 137, 138
Liquidity status, 349 cost cutting strategies in, 430–432
Loan sales, 508 iPhone and, 342
Loans provided by Eximbank, 213 labor costs in, 138
Long position, 385 productivity in, 138
Long run exchange rate in United States, 323
defined, 394 Marginal rate of transformation (MRT), 36
determining, 395–398 Margin of dumping, 159, 166
for domestic vs. foreign goods, 396–397 Markel Corporation, 379
equilibrium, 411 Market. See also Foreign exchange market
inflation rates and, 398–403 adjustment under floating exchange rate, 454
law of one price and, 398–400 common, 269
purchase-power-parity theory and, 398–403 competition in, 298
relative price levels and, 396 Eurodollar, 510
relative productivity levels and, 396 expectations of, 394
trade barriers and, 398 foreign exchange, 357
Los Angeles Lakers, 490 forward, 366–368, 374–381
Los Angeles Olympics of 1984, 15 fundamentals of, 393
Louvre Accord of 1987, 491
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540 Index
futures, 366–368, 374–381 contractionary, 459
power effect of, 308 defined, 480
private, 502 effectiveness of, 484
spot, 366 exchange rate stabilization and, 459
Marshall-Lerner condition, 433, 435, 436 expansionary, 459
Mattel, 260 gross domestic product and, 483
Maturity months, 367 in open economy, 483–486
Maximum price, 239 recession and, 487
Maxwell, 240 Monetary union, 269
Maytag, 137, 168 Money, 433. See also Currency/currencies
McCain, John, 167 Mongoose, 16
McDonald’s, 280, 399 Moore, Michael, 249
McKinley and Dingley Tariffs, 182 Moral hazard, 247
Medicare, 350 Morgan Stanley, 366
Medium run exchange rates, 394 Morill Tariffs, 182
Mercantilists, 29–30 Most favored nation (MFN), 109, 185
Merchandise trade, 74, 331, 337 Motorola, 46
Merck and Co., 380–381 MultiFiber Arrangement (MFA), 200, 236
Merrill Lynch, 388 Multilateral contracts, 239
Messerschmitt–Boelkow–Bolhm, 307 Multilateral Investment Guarantee Agency, 245
Mexico Multilateralism, 267–268
currency crisis in, 467 Multilateral trade, 55
free trade agreement with, 285 Multilateral trading, 54
gross domestic product of, 285 Multinational enterprise (MNE), 295–297
import substitution in, 250 balance of payments and, 315
manufacturing industry in, 6 Caterpillar, Inc. and, 311–312
migration from, 319 conflict and, 310–316
tomato industry in, 289–290 defined, 295
trucking system regulations of, 288–289 employment and, 310–311
Microsoft Corporation, 312, 351, 378 international trade theory and, 305
software piracy and, 210–212 national sovereignty and, 314–315
Migration, 316–323. See also Immigration technology transfer and, 312–314
defined, 316 transfer pricing and, 316
effects of, 318–320 Multinational exploitation of foreign workers, 303
from Mexico, 319 Munich Polytechnic, 8
in United States, 319
Mill, John Stuart, 29, 41 N
Minimum price, 239
Ministry of Economy, Trade and Industry (METI), 216 Nader, Ralph, 192
Minnesota Mining & Manufacturing Co. (3M), 380 NASDAQ Currency Converter, 365
Misasi, Enrico, 251 National currencies, 499
Mitsubishi, 313 National government, relationships between, 489
Mitsubishi Office Machinery Company of Japan, 307 National Iranian Oil, 307
Modern trade theory. See also Comparative National security, 140
Natural gas, 47
advantage; Trade/trading Negotiable order of withdrawal (NOW), 334
foundations of, 29–67 Net debtor, 349
historical development of, 29–35 Net financial inflows, 422
production possibilities schedules and, 35–36 Net financial outflows, 422
Monarch (GM Canada), 298 Net foreign investment, 340
Monetary adjustments, 425 Net transfer of resources, 331
Monetary approach, 425, 433, 442–443 Newell Corporation, 53
Monetary policy New York Yankees, 39
in closed economy, 481–483
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Index 541
Nintendo Co., 379–380 Opel (GM Germany), 298
Nissan Motor Company, 117, 158, 366, 432 Open economy
Nixon, Richard, 502
Nominal exchange rates, 372 crowding in, 492
Nominal interest rate, 405–406 fiscal policy in, 483–486
Nominal tariff rates, 112, 114 macroeconomic policy in, 479–494
Noneconomic arguments, 140–141 monetary policy in, 483–486
Nontariff trade barriers (NTBs), 149–179. See also Dumping of United States, 11
Openness, 9
absolute import quota and, 149–154 Opportunity, international trade as, 20–22
corporate average fuel economy standards and, 174 Opportunity cost, 36
defined, 149 Optimum currency area, 280–281
on domestic manufacturers, 158–160 Optimum tariff, 128–130
in Europe, 174–175 Option, 368
export quotas and, 156–158 Organization of Petroleum Exporting Countries
government procurement policies and, 172–173
on sea transport, 175–176 (OPEC), 1, 108, 240–244
social regulations and, 174 cartels and, 240–243
subsidies and, 161–163 defined, 240
tariff-rate quota and, 154–156 economic policy and, 498
World Trade Organization and, 155 foreign direct investments and, 12
Nordstrom, 134 international debt and, 506–507
Normal foreign exchange rate, 371–373 international economic policy coordination
Normal trade relations, 185
North American Free Trade Agreement (NAFTA), 44, 80, and, 489
multilateral trade in, 55
198, 267, 284–291 profits of, maximizing, 241
benefits of, 285–288 rise of, 42
Canada and, 285–286 Outer limits for the equilibrium terms of trade, 40
costs of, 285–288 Outflow, 339
defined, 284 Outsourcing (off shoring), 6–8
free trade area and, 269 advantages of, 59–60
Mexico and, 285–286 Apple Inc. and, 6, 60–61
optimum currency area and, 290–291 by Boeing, 61–63
tariffs and, 233 defined, 58
on tomatoes, 289–290 disadvantages of, 59–60
on trucking system regulations, 288–289 Japan and, 432
United States and, 286–288 offshore assembly and, 115–116
North Korea, 221–222 tariffs and, 115–116
No-trade boundary, 41 United States automobile industry and, 60
Nucor, 428–429 Overall balance, 479
Overlapping demands as basis for trade, 88–90
O Over-quota rate, 155
Overshooting exchange rates, 410–411
Oakley, 134 Owned reserves, 499, 504
Obama, Barack, 130–131, 173, 216, 274, 317, 487
Occupational Safety and Health Administration, 99, 101 P
Offer rate, 362
Official exchange rate, 450 Pacific Cycle Company, 17
Official reserve assets, 335 Panasonic, 95
Official settlements transactions, 334 Partial balances, 337
Official tier gold system, 502 Partial specialization of products/production, 50–51
Offshore assembly, 115–116 Pass-through exchange rate, 438–441
Offshore assembly provision (OAP), 115–116 Patents, 210
Ohlin, Bertil, 70 Paul, Ron, 503
Payne–Aldrich Tariff, 182
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542 Index
People’s Bank of China, 464 target, 237
Pepsi-Cola, 122, 296, 299 transfer, 316
Perfect competition, 218 Price-specie-flow doctrine, 30
Persistent dumping, 164 Price taker, 123
Peso, 415, 449, 470 Primary-product prices, 237–240
Philippines, 6 buffer stocks and, 237–239
Plaza Agreement of 1985, 491 fair trade movement and, 239–240
PNC Financial Services Group, 379 multilateral contracts and, 239
Pocket calculators, 94–95 production and export controls and, 237
Policies. See also specific policies Primary products, 227–228, 230
Prime View, 19
beggar-thy-neighbor, 129, 139 Principle of absolute advantage, 31
buy-national, 172 Principle of comparative advantage, 32
common agricultural, 276 Principles of Political Economy and Taxation, The
on currency/currencies, 463
economic, 498 (Ricardo), 32
expenditure changing, 480 Private market, 502
expenditure switching, 480 Private transfer payments, 332
export oriented, 252 Procurement policies of government, 172–173
federal reserve, 4 Producer surplus, 122–123, 162
fiscal, 480 Product cycle theory, 92–96
government, 299 Products/production
industrial, 96
monetary, 480 aircraft, 71
strategic trade, 217 comparative advantage and, 53–55
Political economy of protectionism, 142–145 controls for, 237
Political risk, 303 costs of, equalization of, 140
Political Risk Services, 304 differentiated, 91–92
Poor, tariffs impact on, 134–135 domestic, 299–302
Possibilities schedule for products/production, 48 effect of, 272
Post-trade consumption point, 40 finished, 112
Pound, 2, 358, 365, 374, 499 to foreign buyers, 299–302
depreciation of, 434 gains from, 37–38, 44–45, 50, 308–309
exchange rate of, 404 global, 342
Pratt and Whitney, 314 global competition and, 44–45
Predatory dumping, 164 international, 299–302
Premium, 375 labor, 287
Priced-based definition, 166 lags in, 438
Price/pricing life cycle theory of, 93
adjustments of, 420–422 in manufacturing industry, 138
ceiling on, 238 possibilities schedules for, 35–36, 48–50
controls on, 488 primary, 227–228
exchange rate adjustments effect on, 427–430 specialization of, 37–38, 50–51, 86–87
gold standard for, 420 textile, 71
international discrimination, 165 in United States, 138
law of one, 398 Protection, effective rate of, 113
maximum, 239 Protection-biased sector, 143
minimum, 239 Protectionism, 32, 112, 184
primary-product, 237–240 political economy of, 142–145
quantity theory of money and, 420–421 supply and demand view of1, 144–145
stability of, 276 Protective effect, 125, 127, 151, 162
strike on, 368 Protective tariff, 108
support for, 238 Purchase-power-parity theory, 398–403
defined, 400
gross domestic product and, 409
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Index 543
International Monetary Fund and, 409 Regulatory polices of government, 99–101
long run exchange rate and, 398–403 Relative cost, 37
of United Kingdom, 403 Replacement lags, 438
of United States, 403 Reserve assets, 335
World Bank and, 409 Reserve currencies, 499
Purchasing power of money, 433
Pythagorean theorem, 210 borrowing, facilities for, 499, 504–505
dollar as, 351–353
Q international, 496, 497
owned, 499, 504
Quanta Computer Inc., 6 Resources, net transfer of, 331
Quantity theory of money, 420 Retail transactions, 361
Quota Law of 1921, 323 Reuters Dealing, 362
Quota rent, 151 Revaluation, 452
Quotations, foreign exchange, 363–366 Revenue effect, 125, 127–128, 151
Revenue tariff, 108
R Ricardo, David, 29, 31–35, 89
Ringgit, 470
Radios, 94–95 Risks
Ralph Lauren, 134 country, 304, 506
Rates credit, 505
currency, 381, 382, 506
bid, 362 economic, 304
of foreign exchange, 411–415 financial, 303–304
forward, 375 political, 303
of inflation, 398–403 Rolls Royce, 314
offer, 362 Roosevelt, Franklin, 184
over-quota, 155 Rubbermaid, 52–53
within-quota, 155 Rupee, 262, 400
Raw materials of China, 196 Rupiah, 470
Rayburn, Sam, 184 Russia, 7, 467
Reagan, Ronald, 16 Ruth, George Herman “Babe,” 39
Real foreign exchange rate, 371–373
Real interest rate, 406 S
Recession
in Canada, 487 Safeguards, 199–201
fiscal policy and, 487 Safe-haven effect, 410
global, of 2007–2009, 1 Samsung, 95, 168–169
monetary policy and, 487 Saxo Bank (Danish), 388
Reciprocal Trade Agreements Act, 184–185 Schwinn Bicycle company, 15–17
Recognition lags, 437 Scientific tariff, 140, 183
Redistributive effect, 125, 127, 151 Sealand Commerce, 175
Regional financial crises, 466 Sears, 236
Regional integration, 267–268 Sea transport, 175–176
Regionalism, 270 Seattle Coffee Co., 240
Regional trade agreements, 267, 288 Second wave of globalization, 5
Regional trading arrangements, 267–293 Section 301 of Trade Act of 1974, 207–208
effects of, 270–274 Securities, 140, 334, 346
European Monetary Union and, 280–284 Seigniorage, 476
European Union and, 274–280 Selective quota, 150
impetus for, 270 September 11, 2001 terrorist attacks, 23, 141
multilateralism and integrating, 267–268 Sharp, 95
North American Free Trade Agreement and, 284–291 Short position, 385
types of, 268–269 Short run exchange rate, 394, 404–410
Region of mutually beneficial trade, 41
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544 Index
diversification of, 408–410 Standby arrangements, 504
equilibrium, 411 Starbuck’s Coffee Co., 240, 399
expected change in, 407–408 State capitalism, 256
investment flows and, 408–410 Static effects of regional trading arrangements, 270–272
relative levels of interest rate and, 405–407 Static gains, 37
safe havens for, 408–410 Static view of economy, 30
Siemens, 313 Static welfare effects, 271
Single currency, 449 Statistical discrepancy, 336
Single product, law of one price to, 400 Steel industry in United States, 2, 428–429
Sipco Molding Technologies, 432 Stiglitz, Joseph, 248–249
Skill as comparative advantage, 84–85 Stimulus of investment, 273
Skilled labor, 85 Stolper-Samuelson theorem, 78–79
Smaller absolute disadvantage, 34 Strategic trade policy, 217–219
Small nation model of tariff welfare effects, 123–126 Strengthening dollar, 371
Smith, Adam, 29–34 Strike price, 368
Smoot–Hawley Act, 183–184 Subsidies, 161–163
Smoot–Hawley Tariff Act, 129
Socialist market economy, 257 on Airbus, 218
Social regulation, 174 domestic production, 161–162
Social Security, 350 export, 161–163, 276
Solyndra Inc., 216 foreign export, 201–202
Sony, 16, 61, 95, 113 of General Motors, 298
Sony Auto Company of Japan, 309 illegal, 97–98
Soros, George, 385–386, 468 trade and welfare effects of, 161
Sound public finances, 276 Subsidized imports, remedies against, 204–206
South Korea, 274 Sucre, 475
South Korean Steel Inc. (SKS), 164–166 Sunlock Comptometer, 94
Southwest Air, 59, 214 Supply and demand in Venezuela, 170
Special drawing rights (SDRs), 335, 352–353, 499 Supply chains, 58, 342
defined, 335, 503 Surplus, 339–348
International Monetary Fund and, 503–504 consumer, 122–125
Specialization current account, 340
complete, 40 defined, 343–344
gains from, 37, 50 producer, 122–123, 162
inter-industry, 90 Swaps
intra-industry, 90 arrangements for, 505
partial, 50 currency, 360
in production, 86–87 debt-for-debt, 508
Specific-factors theory, 81 Sweatshops, 22
Specific tariff, 109 Switzerland, 504–505
Speculation, 384, 386
destabilizing, 387 T
foreign exchange market and, 384–387
stabilizing, 386 Target, 17, 131, 260
Speculative attack, 465 Target exchange rates, 457
Sporadic dumping, 164 Target price, 237
Sports Illustrated, 141 Tariff Act of 1930, 115
Spot market, 366 Tariff of Abominations, 182
Spot transaction, 359–360 Tariff-rate quota, 154–156
Spread, 362 Tariffs, 107–147. See also Import tariffs
Sri Lanka, 6
Stabilized exchange rate, 276, 451, 459 ad valorem, 109, 110–111
Stabilizing speculation, 386 of advanced countries, 234
avoidance of, 116
barriers on, 14
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Index 545
burdens of, 132–134 Technical forecasts, 413–414
carbon, 203 Technology as comparative advantage, 92–96
compound, 109, 111 Technology transfer, 312
Compromise, 182 Televisions industry in Venezuela, 170
concept of, 108–109 Temporary balance-of-payments, 496
of developing countries, 234 Tenneco, 297
effective rate of, 111–114 Terms of trade, 29, 38, 126
effects of, 121–129 Terms-of-trade effect, 128
escalation of, 114–115 Texas Instruments, 7, 46, 95, 252
European Union and, 233 Textile production, 71
evasion of, 116 Thailand, 6, 469–470
export, 108 Theory of overlapping demands, 88
federal debt and, 132 Theory of reciprocal demand, 41
on footwear, 131 Threat, international trade as, 20–22
Ford Motor Company and, 117 Three-point arbitrage, 374
Fordney–McCumber, 183 Tiananmen Square, 257
import, 108 Time, 141
inverted, 120 Time path of currency depreciation, 436–438
McKinley and Dingley, 182 Tokyo Round of Multilateral Trade Negotiations, 173, 188
Morill, 182 Total manufacturing, 138
most favored nation, 109 Toyota Motor Corporation, 59, 75, 86, 92–93, 94, 117,
North American Free Trade Agreement and, 233
optimum, 128–130 120–121, 158–160, 298, 303, 366, 431
outsourcing and, 115–116 Trade Act of 1974, Section 301 of, 207–208
Payne–Aldrich, 182 Trademarks, 209
protectionism and, 142–145 Trade polices, 227–265
protective, 108
rates on, 111–112, 114 in Brazil, 263–264
revenue, 108 in China, 257–261
scientific, 140, 183 for developing nations, 227–265
specific, 109–110 in East Asia, 254–256
on tires, 130–131 economic growth strategies and, 250–254
trade effects of, 127, 153 in India, 261–263
trade restrictions and, 135–142 Organization of Petroleum Exporting Countries and,
two-tier, 154–156
types of, 109–111 240–244
United States and, 110, 117–119, 130–132, 135, 182 primary-product prices and, 237–240
Wais, 183 World Trade Organization and, 229
Walmart and, 134 Trade promotion authority, 198
welfare effects of, 153 Trade regulations, 181–225. See also Industrial policy
Tariff welfare effects on antidumping duties, 202–207
on consumer surplus, 122–123 on countervailing duties, 201–202
large nation model of, 126–129 economic sanctions and, 219–222
on producer surplus, 122–123 General Agreement on Tariffs and Trade and, 185–189
small nation model of, 123–126 intellectual property rights and, 208–212
Tax Reciprocal Trade Agreements Act and, 184–185
Apple Inc. and, 317 safeguards and, 199–201
deferrals on, 317 Smoot-Hawley Act and, 183–184
foreign credits on, 317 strategic trade policy and, 217–219
interest equalization, 423 Trade Act of 1974 and, Section 301 of, 207–208
international trade, 108 trade adjustment assistance and, 212
on international trade, 108 trade promotion authority and, 198
Technical analysis, 413–414 in United States prior to 1930, 181–183
World Trade Organization and, 189–198
Trade/trading
adjustment assistance and, 212
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546 Index
balance of, 337 unfair practices of, 207–208
barriers of, 190 United Kingdom and, 434
barter terms of, 42 with United States, 11, 437
basis for, 29, 36–37 world, 184
Canada and, 18 Trade-weighted dollar, 371
Colombia and, 18 Transactions
commodity terms of, 42–43 credit, 329
under constant-cost conditions, 36–43 debit, 329
under constant opportunity costs, 35 foreign exchange, 359–361
consumption gains from, 38–41 forward, 360
creation effect of, 272 international, 329
cycle of, 93 official settlements, 334
deficit reduction and, 433–436 retail, 361
in developing nations, 227–236 spot, 359–360
direction of, 36–37 wholesale, 361
dynamic gains from, 43–45 Transparency of rules, 187
economies of scale as basis for, 86 Transplants, 305
effects of, 151, 153, 161 Transportation costs, 91, 101–104
equilibrium of, 41–42 Treaty of Rome, 275
estimating, 42–43 Trek, 16
fairness in, 139 Turkey, 6, 467
favorable balance of, 29 Tweedy, Browne Co., 381
foreign currency, 389 Two-point arbitrage, 374
foreign exchange, 387–389 Two-tier gold system, 502
free, 9, 19–20, 30, 269 Two-tier tariff, 154–156
gains from, 37, 50, 78–79
governmental regulations on, 100 U
income distribution and, 81
under increasing-cost conditions, 46–51 Uncovered interest arbitrage, 382
interbank, 361–363 Underwood Tariff of 1913, 182
inter-industry, 90 Unemployment, 442, 488
international, 9, 29, 33, 43, 79–80, 108 Unfair trading practices, 207–208
intra-industry, 90–92 Unilateral transfers, 332
on jobs, impact of, 51–52 United Auto Workers (UAW), 75, 99, 143, 158, 306
jobs and, impact of, 52 United Kingdom (UK)
losses from, 78–79
merchandise, 74, 331 purchasing-power-parity of, 403
multilateral, 54, 55 trade and, 434
outer limits for the equilibrium terms of, 40 Treasury bills, 376–377, 405
overlapping demands as basis for, 88–90 United Nations Monetary and Financial Conference, 245
patterns of, 83–84 United Nations (UN), 232–233
poor and, 81–83 U.S. Big Three, 75, 306
possibilities line for, 39 U.S. Census Bureau, 195
promotion authority of, 198 U.S. Customs and Border Protection, 149, 155
protectionism and, 112 U.S. Customs Service, 119
purpose of, 30–35 U.S. Department of Commerce, 166–168, 201–202,
region of mutually beneficial, 41
remedy laws for, 199 204, 207
restrictions on, 135–142 U.S. Department of Defense, 172
sanctions in, 219 U.S. Department of Energy, 47
terms of, 29, 38, 126 U.S. dollar, 358, 374
transportation costs and, 101–104
triangle of, 40, 50 appreciation of, 2, 378, 428–429, 437
compensation in, 137
costs and, 428–430
depreciation of, 378, 437
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Index 547
emergence of, 500 iron ore worker sin, 44–45
exchange rate of, 372, 396–397, 404–405 labor and, 11–12, 57, 138
falling, 388 manufacturing in, 323, 432
foreign exchange value of, 371–373 merchandise trade and, 74
imports and, 440 migration in, 319
as reserve currency, 351–353 as monetary union, 269
strengthening, 371 multilateral trade in, 55
trade-weighted, 371 multinational exploitation of foreign workers, 303
United States and, 351–352 as open economy, 9–12
weakening, 371 outsourcing and, 8
U.S. Export-Import Bank (Eximbank), 213–214 post-trade consumption point in, 40
U.S. Federal Reserve Board of Governors, 372 prior to 1930, 181–183
U.S. Federal Reserve (Fed), 4, 405, 425, 447, 458, 460, production in, reshoring, 63–64
productivity in, 138
472–473, 475, 487, 497, 505 purchasing-power-parity of, 403
U.S. Internal Revenue Service (IRS), 316 reserve assets of, 335
U.S. International Trade Commission (ITC), 118, solar industry of, 215–216
steel industry in, 2, 117–119, 206–207, 428–429
166–167, 201, 204, 206 tariff-rate quotas of, 155
U.S. Steel Corp., 173 tariffs and, 110, 130–132, 135, 182
U.S. Tariff Acts of 1922 and 1930, 140 television production in, 17–18
U.S. Treasury, 214, 335, 345, 351, 501, 502–503 textile production in, 71
tomato industry in, 289–290
bills, 382, 384, 408 trade with, 9–11, 50, 437
bonds, 4 trucking system regulations of, 288–289
securities, 463 United Steelworkers of America, 56
United States (U.S.) United Steelworkers (USW), 130
absolute advantage in, 34 Upstream industry, 204
aircraft production in, 71 Upton, Lou, 168
airline industry of, 214–215 Uruguay Round, 189, 278
automobile industry in, 75, 157–158, 160, 305–307 Agreement Act of 1994, 198
balance-of-payments in, 337–339 Agreement on Textiles and Clothing, 234
borrowing by, 344–345 USITC, 199, 206–207
capital account for, 423
capital and, 11–12 V
comparative advantage for, 34, 54
compensation in, 137, 138 Value of the marginal product (VMP), 318, 320
as debtor nation, 349–350 Variable levies, 276–277
direct investment and, 297 Venezuela, 170
dollar of, currency appreciation of, 432 Vertical integration, 296
economic sanctions of, 219 Vietnamese catfish, 167
employment in, 345–346 Volkswagon, 298, 379
Export-Import Bank (Eximbank) and, 214–215
exports of, 57, 91 W
factor endowments in, 71
financial account for, 423 Wages. See Compensation
fiscal stimulus of, 173 Wais Tariff, 183
foreign liabilities of, 336 The Wall Street Journal, 368, 395, 410
foreign securities and, 346 Walmart, 17
free trade agreement with, 274, 285
hormone-treated beef in, 174–175 Bangladesh and, 236
immigration in, 6, 318, 322–323 China and, 260
imports of, 85, 91, 186 footwear at, 131
industrial policies of, 212–216 foreign exchange and, 375
innovation in, 19
international investment and, 349
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548 Index World Health Organization (WHO), 20
Rubbermaid and, 53 World trade, 184
tariffs and, 134 World Trade Organization (WTO), 130, 150, 154,
Warner–Lambert Drug Co., 209 189–198, 267
Weakening dollar, 371 antidumping and, 171
The Wealth of Nations, (Smith), 30–32 China and, 20
Welfare effects corporate average fuel economy standards and, 175
defined, 185
of domestic content requirements, 159 environmental harm of, 194–195
of import quota, 151, 153 future of, 197–198
of international joint ventures, 309 global trading system and, 181
large-nation model of, 127 illegal subsidies and, 97–98
small-nation model of, 124 national sovereignty and, 192–193
of subsidies, 161 nontariff trade barriers and, 155
Welfare gains, 308 rare earth metals and, 195–197
Welfare losses, 308 retaliatory tariffs and enforcing, 193–194
Westinghouse Electric Co., 214, 313 trade policies and, 229
Whirlpool Corporation, 63–64, 168–169 trade settlement disputes and, 191–192
White collar workers, 7–8 World War I, 4, 182, 347, 349
Whitener, Catherine, 88 World War II, 5, 10, 94, 150, 267, 274, 448, 487, 499,
Whittle, Frank, 8
Wholesale transactions, 361 501, 502
Windfall profit, 151 Wright, Wilbur and Orville, 8
Within-quota rate, 155
Wooster, Ohio, 52–53 Y
World Bank, 233
defined, 245 Yen, 357–358
establishment of, 245 appreciation of, 2, 431–432
global financial crisis and, 466 depreciation of, 366
lending by, 246 exchange rate of, 395, 414
Purchasing-Power-Parity and, 409 technical analysis of, 414
sweatshops and, 22
World Economy, 466–467 Yuan (renminbi), 260, 346
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The U.S. Census Bureau U.S. Citizenship and Immigration Services
http://www.census.gov/ftp/pub/foreign-trade/www http://uscis.gov/graphics/
Description: Extensive, recent, and historical data on U.S. Description: Comprehensive statistics on U.S. immigration.
exports, imports, and trade balances with individual countries.
The U.S. Census Bureau has also developed a profile of U.S. Bureau of Economic Analysis
exporting companies. http://www.bea.gov/
Description: Information on the U.S. balance of payments,
The World Bank Group U.S. exports and imports, and the international investment
http://www1.worldbank.org position of the United States.
Description: One of the world’s largest sources of developmental
assistance. This site provides economic briefs and data for The International Monetary Fund (IMF)
countries by region. http://www.imf.org/
Description: International Monetary Fund provides loans,
International Trade Commission technical assistance, and policy guidance to developing members
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documents that address contemporary issues in international
economics. Penn World Table
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Office of the United States Trade Representative Description: Provides purchasing power parity and national
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http://www.ustr.gov/ countries/territories for some or all of the years 1950-2009.
Description: Reports issued by the OUSTR and related entities
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Bureau of Labor Statistics/Foreign Labor Statistics
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Description: Comparison of the hourly compensation of www.levelfieldinstitute.org
U.S. workers in manufacturing to that of workers in other Description: A scorecard for families and public officials.
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World Intellectual Property Organization
CIA’sHandbook of International Economic Statistics www.wipo.int/ipstats/en
http://www.cia.gov Description: Promotes innovation and creativity for the
Description: Comprehensive information on most countries economic, social and cultural development of all countries,
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The Heritage Foundation NASDAQ Currency Converter
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Description: Washington’s preeminent think tank, have Description: The NASDAQ.com Currency Converter allows to
tracked the march of economic freedom around the world calculate currency and foreign exchange rates using up-to-date
with the influential Index of Economic Freedom. currency rates for 19 different currencies.
Fortune Chicago Mercantile Exchange, International
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Political Risk Services uncertain global economy allows them to operate more
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Description: Provides risk analysis for the political, financial
and economic situation in all countries. Tweedy Browne Company LLC
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World and Ihome School Description: A dealer in closely held and inactively traded
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