Balance of trade deficit-
A situation that results when a state buys more from abroad than it sells. The balance measures both the value of
merchandise goods and services imported and exported. To correct a payments deficit, a country has available three
basic options. 1- its government can initiate deflationary policies at home by raising interest rates to tighten
budgets; 2- it can restrict the outflow of money by imposing higher tariffs, import quotas, or other restrictions; 3- it
can borrow in capital markets or liquidate its foreign exchange reserves.
Balance of Payments-
A calculation summarizing a country’s financial transactions with the external world, determined by the level of
credits (export earnings, profits from foreign investment, etc) minus the country’s international debts (imports,
interest payments, etc). A favorable balance of payment is achieved when a country’s international credits exceed
its national debts.
Devaluation- the lowering of the official exchange rate of one country’s currency relative to the value of all other state’s
currencies, usually in hope that the devaluation will encourage foreign investors to purchase products at the
artificially reduced price.
A policy of creating barriers to foreign trade, such as tariffs and quotas, that protect local industries from
competition. A number of mercantilist policies to keep foreign goods out of a country and to subsidize the export of
goods to encourage foreigners to buy domestically produced goods.
Reasons: National Security (military goods, etc.), Future Economic Growth (American firms made to help
Americans, NIEs with prospects of growth in a poor economy), Adjust to New Competitors (government intervenes
on their behalf, government intervened when Japanese competition was overwhelming Detroit, so government
intervened with VERs), and Democratic Politics (says that states have ability to pursue whatever their interests are.
States want to protect their national well being.
Beggar-thy neighbor policies-
Seek to enhance domestic welfare by promoting trade surpluses that can be realized only at other
countries’ expense. They reflect a government’s efforts to reduce unemployment through currency
devaluations, tariffs, quotas, export subsidies, and other strategies to adversely affect trade partners.
These strategies seek unequal exchanges between exporters and importers.
Specify the quantity of a particular product that can be imported from abroad. In the late 1950s, the
United States established import quotas on oil to protect national security. The government determines
amount and source of imports, not the marketplace.
Result from negotiated agreements between producers and consumers that restrict the flow of goods from
the producer to the consumer. An Orderly Market Arrangement (OMA) is a formal agreement where a
country agrees to limit their exports that might impair workers in the importing countries. Exporting