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Chapter 12, continued Barriers to International Trade and Investment

Chapter 12, continued Barriers to International Trade and Investment. Trade offsets differences in factor endowments, and factor movements reduce these differences However, barriers exist: Management (limited ambition, ignorance of opportunities, lack of skills, fear, inertia)

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Chapter 12, continued Barriers to International Trade and Investment

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  1. Chapter 12, continuedBarriers to International Trade and Investment • Trade offsets differences in factor endowments, and factor movements reduce these differences • However, barriers exist: • Management (limited ambition, ignorance of opportunities, lack of skills, fear, inertia) • Distance (transport costs, and various fees, resulting in transfer costs/transfer pricing • Government (tariffs, nontariff barriers, protectionism / infant-industry arguments

  2. The Long-Run Decline in Tariffs

  3. Tariffs, Quotas, and Nontariff Barriers • Tariffs imposed on exports, imports, or in transit • The rise of quotas – especially the use of export quotas • Consequences of tariffs and quotas: protection of inefficient industry (Figure 11.17 – we will pick it apart) • Government assistance to promote trade

  4. The economic impact of tariffs and quotas Domestic Demand Price Difference Tariff goes to government; quotas put higher spending in corporate hands Domestic Output At World Price Q5-Q1 is import quantity without tariffs

  5. Reductions of Trade Barriers • GATT – created in 1947 as a part of the Bretton Woods agreements that also established the IMF and the World Bank • The ITO—a precursor to today’s WTO was not ratified by the U.S. Congress, but GATT served as a basis for trade barrier reduction until 1986, when the WTO was created as a successor (over the 1986-1994 time period – the “Uruguay round”) • Key recent issues: trade in services, limits on foreign investment, establishing intellectual property rights, and agricultural policies (EU)

  6. WTO Members, China is now in

  7. Issues surrounding the WTO • Third-party arbitration of trade conflicts (Boeing and Airbus) • Judgments enforced through sanctions by other member governments • Loss of sovereignty • Lack of environmental protection standards • Job losses in production systems manipulated by global corporations • The 1999 “Battle in Seattle” & subsequent protests (including World Social Forum)

  8. Other Trade Issues • Government Barriers (exchange controls, capital controls) • Multinational (Economic) Organizations: U.N (WHO, ILO), ASEAN, Asian Development Bank, NATO, OPEC, OECD, EU, IMF (short-term) & World Bank (long-term) • Reactions against these “neoliberal” institutions

  9. Regional Economic Integration

  10. International Trade Blocs

  11. NAFTA & FTAA Arguments over job redistribution (videotape in class…) Mexican exports to the U.S. have grown much faster than U.S. exports to Mexico, exactly what you would predict given the difference in labor costs

  12. OPEC: The most successful cartel Responsible for about 50% of global crude oil production

  13. Globalization and Business Cycles • Historic business cycles tied to big swings in commodity production – impacted by factors such as interest rates & changes in government demand • Globalization dampens the importance of these national cycles, as does the logistical revolution • Many more substitution possibilities for suppliers in the global marketplace also reduces the ability of regional producers to extract relatively high prices from customers

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