Chapter2TheDynamicEnvironmentofInternationalTradeIntroductionHistoryofworldtrade:Stockmarketcrashof1929;U.S.gaveuponfreetradeOthercountriesretaliatedandworldtradecollapsedintoaglobaldepressionAfterWorldWarII,theU.S.andtheindustrializednationswantedfreetradeWorldtradeincreased22-foldsince1950GeneralAgreementonTariffsandTrade(GATT)wasformedin1944tohelpreducetariffs2-2OverviewTransitionoftheworldtradefromthe20thtothe21stcenturyBalanceofpaymentsProtectionism–LogicandillogicTradebarriersEasingtraderestrictions–GATT,WTO,IMF,andtheWorldBankGroupAnti-globalizationprotests2-3GlobalPerspective

TradeBarriers:AnInternationalMarketer’sMinefieldManycountriestakeadvantageofU.S.openmarketswhileputtingbarriersinthewayofU.S.exportsJapan(snowskis,rice,baseballs,andbeef)France(Americanmoviesandsongs)Britain(taxingofP&G’sPringlepotatochips)TradebarriersnotonlylimithowmuchU.S.companiescansell,theyalsoraisepricesforimportedproductsmuchhigherthantheysellforintheU.S.SincethebirthoftheWTO(WorldTradeOrganization),effortshavebeenmadebymanycountriestoreducetradebarriers,benefitingtheworldsocially,politically,andeconomically2-4TheInternational

TradeEnvironmentYesterday’scompetitivemarketbattleswerefoughtinwesternEurope,Japan,andtheUnitedstates;nowthesebattleshaveexpandedtoLatinAmerica,easternEurope,Russia,China,India,Asia,andAfrica.Thisemergingglobaleconomybringssignificantadvantagestobothmarketersandconsumers:MarketersbenefitfromnewmarketsthatgivethemviablebusinessopportunitiesConsumersbenefitfromawidearrayofgoodsatthelowestprices.2-5TopTen2021U.S.TradingPartners

($billions,merchandisetrade)Exhibit2.12-6Twentiethtothe

Twenty-FirstCentury(1of2)FirstHalfoftheTwentiethCenturyTheDepressionera(1930s)betweentwoworldwars-WWI(1914-1919)andWWII(1939-1945)CapitalismwaspromotedbytheU.S.throughtheMarshallPlan:EconomicallyrebuildingEuropeandJapanFosteringeconomicgrowthintheunderdevelopedworldInshort,theUnitedStateshelpedmaketheworld’seconomiesstronger,whichenablethemtobuymorefromus.2-7Twentiethtothe

Twenty-FirstCentury(2of2)GATT(GeneralAgreementonTariffsandTrade)wascreatedin1986byworldleaderstohelpnegotiatereductionsintariffsandothertradebarriers.WTO(WorldTradeOrganization)wascreatedin1995toreinforceGATTrulesandlegislatetradedisputes.Lasthalfofthe20thcenturymarredbycompetingapproachestoeconomicdevelopmentbetweentheSocialistMarxistandDemocraticcapitalist.2-8WorldTradeand

U.S.Multinationals(1of2)21stcenturyusheredintheeraofnewglobalmarketingopportunities1950s–U.S.companiesbegantoexportandmakesignificantinvestmentsinoverseasmarketingandproductionfacilities1960s–U.S.multinationalcorporations(MNCs)facedmajorchallengesontwofrontsResistancetodirectinvestmentIncreasingcompetitioninexportmarketsIM-chj-chapter22-9WorldTradeand

U.S.Multinationals(2of2)AmericanMNCswereconfrontedbyaresurgenceofcompetitionfromallovertheworldJapan,Germany,NIC(NewlyIndustrializedCountries–Brazil,Mexico,India,SouthKorea,Taiwan,Singapore,HongKong),developingcountriessuchasVenezuela,Chile,BangladeshestablishedSOE(State-OwnedEnterprises)TheU.S.roleasaneconomicpowerhousewaschallengedontwofronts:U.S.positioninworldtrade(seechartonthenextslide)U.S.tradedeficit(ashighas$700billionin2007)Lastdecadeofthe20thcenturysawprofoundchangesinthewayworldtradewouldbedoneFreetradezonesdevelopedsuchasNAFTA,AFTA,andAPEC2-10World’s100LargestIndustrialCorporations(AnnualRevenues)Exhibit2.22-11BeyondtheFirstDecade

ofthe21stCentury(1of2)GrowthoftheU.S.economysloweddramaticallyinthelastfewyearsespeciallyin2021Economiesofthedevelopedworldexpectedonaveragetogrowannuallyat3%forthenext25years(OECD)Economiesofthedevelopingworldexpectedonaveragetogrowannuallyat6%forthenext25years(OECD)Asaresult,economicpowerandinfluencewillmoveawayfromindustrializednationstodevelopingnations(LatinAmerica,Asia,EasternEurope,andAfrica)2-12BeyondtheFirstDecade

ofthe21stCentury(2of2)Companiesarelookingforwaystobecomemoreefficient,improveproductivity,andexpandtheirglobalreachwhilemaintaininganabilitytorespondquicklyanddeliverproductsthatthemarketsdemand.Nestle,Samsung,WhirlpoolSmallercompaniesalsousingnovelapproachestotargetglobalmarketsNocharInc.(fireretardant)BuztronicsInc.(promotionallapelbuttons)2-13BalanceofPayments

(1of2)Balanceofpaymentsisdefinedasthesystemofaccountsthatrecordsanation’sinternationalfinancetransactions.TransactionsrecordedannuallyMustalwaysbeinbalanceArecordofcondition,notdeterminantofconditionBalanceofpaymentsincludethreeaccounts:Currentaccount(exports,imports,services,funds)Capitalaccount(investmentsandshort-termcapital)Reservesaccount(gold,foreignexchange,andliabilities)2-14BalanceofPayments

(2of2)Receipts(+)Payments(-)ExportsalesMoneyspentbyforeigntouristsTransportationInsurancetotheU.S.governmentDividendandinterestoninvestmentsabroadForeigngovernmentpaymentstotheU.S.2-15U.S.CurrentAccount

byMajorComponents,2021($billions)Exhibit2.32-16U.S.CurrentAccountBalance

(%ofGDP)Exhibit2.42-17WhatWould

OneU.S.DollarBuy?Exhibit2.4

2-18ProtectionismTherealityofworldtradeisthatcountriesprotectitsmarketsfromforeigncompaniesbysettinguptariffs,quotas,andnontariffbarriers.Barrierstotradecantakeanyofthefollowingforms:Legal(tariffsandquotas)ExchangePsychological(nontariffs)Privatemarket2-19Protection

LogicandIllogicArgumentsforprotectionism:ProtectionofinfantindustryProtectionofthehomemarketNeedtokeepmoneyathomeEncouragementofcapitalaccumulationMaintenanceofthestandardoflivingandrealwagesConservationofnaturalresourcesIndustrializationofalow-wagenationMaintenanceofemploymentandreductionofunemploymentNationaldefenseIncreaseofbusinesssizeRetaliationandbargaining2-20DoesProtectionismHelp?Arecentstudyon21protectedindustriesshowedthatwhilejobsareprotected,consumerspaymuchhigherpricesbecauseofprotectionism:U.S.consumerspayabout$70billionperyearinhigherpricesbecauseoftariffsandotherprotectiverestrictions.Atthesametime,theaveragecosttoconsumersforsavingonejobintheseprotectedindustrieswas$170,000peryear.Protectionismispoliticallypopular,particularlyduringtimesofdecliningwages,and/orhighemployment,butitrarelyleadstorenewedgrowthinadecliningindustry.2-21TradeBarriersTariffsQuotasandImportLicensesVoluntaryExportRestraints(VER)BoycottsandembargoesMonetarybarriersBlockedcurrencyGovernmentapprovalStandardsAntidumpingpenaltiesDomesticsubsidiesandeconomicstimuli2-22TradeBarriersTariffsaretaxesimposedbyagovernmentongoodsenteringitsborders.Inflationarypressures,specialinterests’privileges,governmentcontrolandpoliticalconsiderationsineconomicmatters,andthenumberoftariffsBalance-of-paymentpositions,supplyanddemandpatterns,andinternationalrelationsbystartingtradewarsManufacturer’ssupplysources,choicesavailabletoconsumers,andcompetition2-23TradeBarriersQuotasandImportLicensesQuotaisaspecificunitordollarlimitappliedtoaparticulartypeofgood(increasespriceofgood)Importlicenseslimitsquantitiesonacase-by-casebasisJapanandforeignrice;BananawarsbetweentheUnitedStatesandtheEUVoluntaryExportRestraints(VER)Oftenusedinthe1980sisanagreementbetweentheimportingcountryandtheexportingcountryforarestrictiononthevolumeofexports.Japan’sVERonU.S.automobiles2-24TheGeneralAgreementon

TariffsandTrade(GATT)ShortlyafterWorldWarII,theU.S.and22othercountriessignedGATT(1947)whichpavedthewayforthefirsteffectiveworldwidetariffagreementBasicelementsoftheGATTTradeshallbeconductedonanondiscriminatorybasisProtectionshallbeaffordeddomesticindustriesthroughcustomstariffs,notthroughsuchcommercialmeasuresasimportquotasConsultationshallbetheprimarymethodusedtosolveglobaltradeproblemsEliminatinginternationaltradebarriers–UruguayRoundTheGeneralAgreementonTradeinServices(GATS)Trade-RelatedInvestmentMeasures(TRIMs)Trade-RelatedaspectsofIntellectualPropertyRights(TRIPs)2-25GeneralAgreementonTariffsandTradeBeforeGATT:bilateralagreements,tendencytoraisebarriersratherthanextendmarketsGATTtraderounds:YearPlace/nameSubjectscoveredCountries1947GenevaMultilateralTariffsReduction231949AnnecyTariffs131951TorquayTariffs381956GenevaTariffs261960-1961Geneva(DillonRound)Tariffs261964-1967Geneva(KennedyRound)Tariffsandanti-dumpingmeasures621973-1979Geneva(TokyoRound)Tariffs,non-tariffmeasures,“framework”agreements1021986-1994Geneva(UruguayRound)Tariffs,non-tariffmeasures,rules,services,intellectualproperty,disputesettlement,textiles,agriculture,creationofWTO,etc1232023/10/1526IM-chj-chapter2TheWorld

TradeOrganization(WTO)WTOwhichisaninstitution,notanagreement,wasfoundedin1994.Setsmanyrulesgoverningtradebetweenits148membersProvidesapanelexportstohearandruleontradedisputesbetweenmembersIssuesbindingdecisionsAllmembercountrieswillhaveequalrepresentationMembercountrieshaveopentheirmarketsandtobeboundbytherulesofthemultilateraltradingsystemU.S.ratificationconcernsPossiblelossofsovereigntyoveritstradelawstoWTOLackofvetopowerRoleU.S.wouldassumewhenaconflictarisesoveranindividualstate’slawsthatmightbechallengedbyaWTOmemberChinabecamememberoftheWTO(2001);Vietnam(2007)2-27Skirtingthespiritof

GATTandWTOLoopholesChinareducedtariffswhileatthesametimeincreasednumberandscopeoftechnicalstandardsandinspectionrequirementsImposingantidumpingdutiesNegotiatingbilateraltradeagreementsMayleadtomultinationalconcessionsNotnecessarilyconsistentwithWTOgoalsandaspirations2-28自由貿(mào)易和公平貿(mào)易FREETRADEEqualaccesstocountrymarkets對各國市場進入平等Non-discriminationininternationalprocurement國際采購中非歧視Respectforpropertyrights尊重產(chǎn)權(quán)Transparencyinlegalsystems法律體系透明Eliminationoftradebarriers消除貿(mào)易壁壘FAIRTRADEEnhancinglocalcitizen’swellbeing(livingwages,safeandhealthyworkconditions)提高本地居民的福利〔生活工資、健康、工作條件等〕Localscanremainindependentfromexternalgovernmentsandprivateorganizationsindevelopingtheirlivelihoods.本地在開展民生中保持獨立，和外國政府和私人組織區(qū)別開來2023/10/1529IM-chj-chapter2InternationalMonetaryFund(IMF)Becauseofinadequatemoneyreservesandunstablecurrencies,theIMFwascreatedtoassistnationsinbecomingandremainingeconomicallyviableObjectivesoftheIMFStabilizationofforeignexchangeratesEstablishmentoffreelyconvertiblecurrenciestofacilitatetheexpansionandbalancedgrowthofinternationaltrade2-30WorldBankGroupBypromotingsustainablegrowthandinvestmentinpeople,theWorldBankGroupisaninstitutioncreatedin1944toreducepovertyandimprovestandardoflivingTheWorldBankhasfiveinstitutionswhichperformthefollowingservices:LendingmoneytothegovernmentsofdevelopingcountriesProvidingassistancetogovernmentsfordevelopmentalprojects

tothepoorestdevelopingcountries(percapitalincomesof$925orless)LendingdirectlytotheprivatesectorProvidinginvestorswithguaranteesagainst“noncommercialrisk〞Promotingincreasedflowsofinternationalinvestment2-31Anti-globalizationProtestsTheunintendedconsequencesofglobalizingEnvironmentalconcernsWorkerexploitationanddomesticjoblossesCulturalextinctionHigheroilpricesDiminishedsovereigntyofnationsProtestsWTOmeetinginSeattle(November2021)WorldBank