Glossary of Trade Terms
Understand the key vocabulary used in international trade discussions.
A tax imposed by a government on goods and services imported from other countries. Tariffs increase the price of imported goods, making them less competitive with domestic products.
Example: The U.S. imposing a 10% tariff on imported steel means that steel from other countries will be 10% more expensive for American buyers.
An economic measure of a positive balance of trade, where a country's exports exceed its imports.
Example: If Germany exports €500 billion worth of goods and services while importing €400 billion, it has a trade surplus of €100 billion.
An economic measure of a negative balance of trade, where a country's imports exceed its exports.
Example: If the U.S. imports $600 billion worth of goods and services while exporting $500 billion, it has a trade deficit of $100 billion.
Government policies that restrict international trade to help domestic industries. Protectionist policies are usually implemented with the goal of improving economic activity within a domestic economy but can also be implemented for safety or quality concerns.
Example: A country might use quotas (limits on the quantity of imports) or subsidies (financial aid to domestic producers) as protectionist measures.
An economy's ability to produce a particular good or service at a lower opportunity cost than its trading partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
Example: If Brazil can produce coffee at a lower opportunity cost than tea, and India can produce tea at a lower opportunity cost than coffee, Brazil should specialize in coffee and India in tea, then trade with each other.
A pact between two or more nations to reduce barriers to imports and exports among them. Under a free trade policy, goods and services can be bought and sold across international borders with little or no government tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.
Example: The Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada is an example of an FTA.
When a country or company exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. This is often done to gain a competitive advantage in the importing market.
Example: If a company sells widgets for $10 in its home country but exports them to another country for $7, it might be accused of dumping.