World Trade & Globalization
Why did Tesla choose Shanghai for its Gigafactory instead of exporting from the U.S.?
To avoid tariffs from the U.S.-China trade war and access a massive local market
What is an industry cluster?
A concentration of related businesses in a geographic area.
What is the difference between a firm that exports and a multinational firm?
Exporters sell abroad, multinationals operate production facilities in multiple countries.
What’s the main purpose of a tariff?
To raise the price of imported goods and protect domestic industries.
What’s the difference between GDP and GNP?
GDP = all production inside a country. GNP = income earned by citizens, even abroad.
What is one benefit of trade liberalization?
Increased competition leads to lower prices and more innovation.
Why do electronics companies cluster in Shenzhen?
Because the entire supply chain — from design to production — is locally available.
Why might a company choose to outsource instead of producing in-house?
To lower costs, access skills, or scale operations without capital investment.
Which U.S. industry was used as an example for a tariff in 2018?
The steel industry.
Why might a country run a current account deficit?
It imports more than it exports — often financed by foreign investment.
True or False: Trade deficits always mean a country is in trouble.
False — it depends on what is being imported and how it's financed.
How do external economies of scale give certain regions an advantage?
Lower costs due to shared suppliers, skilled labor, and infrastructure.
Give one reason why not all firms export.
High fixed costs, limited market knowledge, or domestic focus.
What did Japan limit in the 1980s through quotas?
Japanese car exports to the U.S.
What happened to some U.S. cities after trade with China increased?
Factory closures, job loss, and community decline (Rust Belt).
Which country was used as a case study to show multiple trade conflicts (U.S.-Canada-Mexico-China)?
The U.S., with examples across multiple trading partners.
Why is Seoul the center of K-pop?
Collection of agencies, talent schools, studios, and global visibility.
What type of firm is most likely to benefit from global supply chains?
Large, high-productivity firms with experience in managing international operations.
What’s one key difference between a quota and a tariff?
Quotas limit quantity directly; tariffs raise price indirectly.
In the Specific Factors model, who gains most from trade?
Mobile labor and owners of capital in expanding sectors.
What’s one lesson learned from Tesla’s experience in Germany?
Regulatory hurdles and labor laws can delay expansion, even in developed economies.
What is one risk of relying too heavily on a single industry cluster?
A shock to that industry can ripple through the entire region.
True or False: Outsourcing always leads to job loss in the home country.
False — it can shift jobs but also create new ones in other sectors.
Which tool can create monopoly-like profits for those with licenses?
Import quotas.
What is the Balance of Payments?
A record of a country’s trade, investment, and financial flows with the rest of the world.