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Chapter 2

Chapter 2. The International Trade Institutions and Trade Policy. The Historical Dimension. Ancient traders. Rome and the Pax Romana. European feudalism in the middle ages. Protectionism in the 1930’s and Smoot-Hawley Act:. The emergence of global division (1945).

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Chapter 2

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  1. Chapter 2 The International TradeInstitutions and Trade Policy

  2. The Historical Dimension • Ancient traders. • Rome and the Pax Romana. • European feudalism in the middle ages. • Protectionism in the 1930’s and Smoot-Hawley Act:. • The emergence of global division (1945).

  3. Overview of International Business History • Pax Romana • The “roman peace” ensured that merchants were able to travel safely and rapidly on roads built, protected, and maintained by the roman legions. • European feudalism • By delivering a portion of their “earnings” to a protector, medieval farmers were shielded from the depredations of outsiders. While local economies were largely closed, east-west export /import trade thrived.

  4. Overview of International Business History (Continued) • Protectionism in the 1930’s and the Smoot-Hawley Act: • The act raised import duties to reduce the volume of imports into the united states. • The intent increased domestic employment.

  5. Overview of International Business History (Continued) Global Division (1945) • The post-war east and west ideological split • The soviet union and the eastern bloc • Council for mutual economic assistance (CMEA or COMECON). • 53 western countries • The international trade organization (ITO) - 1948. • Pax Americana • The “American peace” ensuring safety in the western world from 1945 to 1990 helped world trade grow dramatically.

  6. Transactional Institutions and World Trade • General agreement on tariffs and trade (GATT) • World trade organization (WTO) • International monetary fund (IMF) • World bank • Regional institutions

  7. WTO HomepageTrade Topics The creation of the WTO has greatly broadened the scope of international trade agreements.

  8. Transactional Institutions and World Trade (Continued) • GATT focused on reducing prevailing high tariffs • Most-favored nation (MFN) clause • “Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”. • World trade organization (WTO) in 1995 • General agreement on trade in services (GATS). • Trade-related aspects of intellectual property rights (TRIPS). • Trade-related investment measures (TRIMS).

  9. International Monetary Fund (IMF) • Developed out of the Bretton Woods agreement in 1944. • Offers gold and constituent currencies available to members for currency stabilization. • It was the goal originally to provide for fixed exchange rates between countries.

  10. World Bank • The international bank for reconstruction and development • Formed in 1944, it provides economic assistance for the reconstruction of war-torn and, more recently, loans to developing countries.

  11. Regional Institutions • European Coal and Steel Community • Customs Unions • European Union (EU) • North American Free Trade Agreement (NAFTA) • Mercosur - Latin America • Gulf Cooperation Council (GCC)

  12. The Effects of Trade • The impact of trade and investment on the U.S. has been a continuous trade deficit. • A steady erosion of U.S. share of world exports. • Imports have exceeded U.S. exports since 1975. • Missed opportunities for the benefits of exporting. • Economies of scale. • Market and business risk diversification. • Strengthening of competitive capabilities. • Foreign direct investment in the U.S. • 1 in 7 manufacturing employees now works for a foreign affiliate (10% or more foreign ownership).

  13. Policy Responses to Trade Problems • Voluntary import restrictions • Tariffs • Non-tariff barriers

  14. Export Promotion Efforts Reasons • National need to earn foreign currency. • Encouragement of domestic employment. • Increase in domestic economic activity

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