Global Marketing E-Commerce
Question 1: Describe some of the economic risks of international trade.
Answer 1: International trade is accompanied by some unique risks. Perhaps the greatest is the risk of insolvency of the buyer, which can be more difficult to mediate from a foreign country. There is also a risk of protracted default, the failure of the buyer to pay the amount due within six months after the due date. International traders also run the risk of non-acceptance; that is, the risk that the buyer will deem the product unsatisfactory. When shipping overseas, dealing with returns can be quite expensive. In all of these scenarios, a company must work from a position in which they have surrendered some of their economic sovereignty.
Question 2: Discuss the regulation of international trade. (part two)
Answer 2: Traditionally agricultural regions are usually in favor of free trade, while manufacturing sectors often support protectionism. This has changed somewhat in recent years, however. In fact, agricultural lobbies, particularly in the United States, Europe and Japan, are chiefly responsible for rules in the major international trade treaties which allow for greater protection for agriculture than for most other goods and services. During recessions, there is often strong domestic pressure to increase tariffs and protect domestic industries. This occurred during the Great Depression, leading to a collapse in world trade that may have deepened the depression. International trade is regulated by the World Trade Organization at the global level, and regionally by arrangements such as MERCOSUR in South America, NAFTA between the United States, Canada and Mexico, and the European Union between 27 independent states. The 2005 Buenos Aires plans for the establishment of the Free Trade Area of the Americas (FTAA) failed largely because of opposition from the populations of Latin American nations. Similar agreements, such as the MAI (Multilateral Agreement on Investment), have also failed in recent years.
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Question 3: Describe absolute advantage.
Answer 3: A country has an absolute advantage over another in producing a good if it can produce that good using fewer resources. The national benefits of trade are the same as the individual benefits: trade permits specialization, which allows resources to be used more productively.
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