International Trade Cheat Sheet

The core ideas of International Trade distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/international-trade/cheatsheet

Quick Reference

Comparative Advantage

The principle that a country should specialize in producing and exporting goods for which it has the lowest opportunity cost relative to other countries, even if it does not have an absolute advantage in producing any good.

Absolute Advantage

The ability of a country to produce a good using fewer resources than another country. A nation has an absolute advantage when it is more efficient at producing a specific product.

Tariff

A tax imposed by a government on imported goods or services. Tariffs raise the price of imports, making domestic products relatively cheaper, and generate revenue for the government.

Trade Deficit

A situation in which a country's imports of goods and services exceed its exports. A persistent trade deficit means the country is spending more on foreign products than it earns from selling its own goods abroad.

Free Trade Agreement (FTA)

A pact between two or more nations to reduce or eliminate barriers to imports and exports among them, including tariffs, quotas, and other restrictions on the flow of goods and services.

Balance of Payments

A comprehensive record of all economic transactions between residents of a country and the rest of the world during a specific period, including the current account, capital account, and financial account.

Quota

A government-imposed limit on the quantity or value of a good that can be imported or exported during a given time period. Quotas directly restrict trade volume rather than raising prices through taxes.

Heckscher-Ohlin Model

A trade theory stating that countries export goods that intensively use their abundant factors of production and import goods that intensively use their scarce factors. It explains trade patterns based on differences in factor endowments.

Terms of Trade

The ratio of a country's export prices to its import prices. An improvement in the terms of trade means a country can buy more imports for each unit of exports it sells.

Exchange Rate

The price at which one country's currency can be exchanged for another's. Exchange rates directly affect the competitiveness of a country's exports and the cost of its imports.

Key Terms at a Glance

Absolute Advantage:The ability of a country to produce a good more efficiently (using fewer resources) than another country.

Anti-Dumping Duty:A tariff imposed on imports that are priced below fair market value to counteract the effects of dumping.

Balance of Payments:A comprehensive record of all economic transactions between a country's residents and the rest of the world over a given period.

Capital Account:The component of the balance of payments that records capital transfers and the acquisition or disposal of non-produced, non-financial assets.

Comparative Advantage:The ability of a country to produce a good at a lower opportunity cost than another country, forming the basis for mutually beneficial trade.

Current Account:The balance of payments component that tracks trade in goods and services, net income from abroad, and net current transfers.

Customs Union:A trade agreement in which members eliminate tariffs among themselves and adopt a common external tariff on imports from non-members.

Dumping:The practice of exporting a good at a price below its normal value in the home market or below its cost of production.

Exchange Rate:The rate at which one national currency can be exchanged for another, affecting the relative prices of imports and exports.

Export Subsidy:A government payment to domestic producers to encourage exports by reducing their production costs and making their goods cheaper in foreign markets.

Free Trade Agreement:A treaty between two or more countries to reduce or eliminate tariffs and other trade barriers on goods and services traded between them.

GATT:The General Agreement on Tariffs and Trade, a multilateral treaty (1947-1994) that promoted trade liberalization through successive negotiating rounds.

Global Value Chain:The full sequence of activities required to bring a product from conception to end use, with stages distributed across multiple countries.

Heckscher-Ohlin Model:A trade model predicting that countries export goods that intensively use their abundant factors and import goods that use their scarce factors.

Infant Industry:A new or emerging domestic industry that is not yet competitive with established foreign firms and may justify temporary trade protection.

Get study tips in your inbox

We'll send you evidence-based study strategies and new cheat sheets as they're published.

We'll notify you about updates. No spam, unsubscribe anytime.