Chapter 2 The Dynamic Environment of International Trade

1. International Marketing 15th edition Chapter 2 The Dynamic Environment of International Trade Philip R. Cateora, Mary C. Gilly, and John L. Graham

2. Top Ten 2009 U.S. Trading Partners($ billions, merchandise trade) Exhibit 2.1 Roy Philip

3. Beyond the First Decade of the 21st Century (1 of 2) • Growth of the U.S. economy slowed dramatically in the last few years especially in 2009 • Economies of the developed world expected on average to grow annually at 3% for the next 25 years (OECD) • Economies of the developing world expected on average to grow annually at 6% for the next 25 years (OECD) • As a result, economic power and influence will move away from industrialized nations to developing nations (Latin America, Asia, Eastern Europe, and Africa) Roy Philip

4. Beyond the First Decade of the 21st Century (2 of 2) • Companies are looking for ways to become more efficient, improve productivity, and expand their global reach while maintaining an ability to respond quickly and deliver products that the markets demand. • Nestle, Samsung, Whirlpool • Smaller companies also using novel approaches to target global markets • Nochar Inc. (fire retardant) • Buztronics Inc. (promotional lapel buttons) Roy Philip

5. Protection Logic and Illogic • Arguments for protectionism: • Protection of infant industry • Protection of the home market • Need to keep money at home • Encouragement of capital accumulation • Maintenance of the standard of living and real wages • Conservation of natural resources • Industrialization of a low-wage nation • Maintenance of employment and reduction of unemployment • National defense • Increase of business size • Retaliation and bargaining Roy Philip

6. Does Protectionism Help? • A recent study on 21 protected industries showed that while jobs are protected, consumers pay much higher prices because of protectionism: • U.S. consumers pay about $70 billion per year in higher prices because of tariffs and other protective restrictions. • At the same time, the average cost to consumers for saving one job in these protected industries was $170,000 per year. • Protectionism is politically popular, particularly during times of declining wages, and/or high employment, but it rarely leads to renewed growth in a declining industry. Roy Philip

7. Trade Barriers • Tariffs • Quotas and Import Licenses • Voluntary Export Restraints (VER) • Boycotts and embargoes • Monetary barriers • Blocked currency • Government approval • Standards • Antidumping penalties • Domestic subsidies and economic stimuli Roy Philip

8. Increase Weaken Restrict Trade Barriers • Tariffs are taxes imposed by a government on goods entering its borders. Inflationary pressures, special interests’ privileges, government control and political considerations in economic matters, and the number of tariffs Balance-of-payment positions, supply and demand patterns, and international relations by starting trade wars Manufacturer’s supply sources, choices available to consumers, and competition Roy Philip

9. Trade Barriers • Quotas and Import Licenses • Quota is a specific unit or dollar limit applied to a particular type of good (increases price of good) • Import licenses limits quantities on a case-by-case basis • Japan and foreign rice; Banana wars between the United States and the EU • Voluntary Export Restraints (VER) • Often used in the 1980s is an agreement between the importing country and the exporting country for a restriction on the volume of exports. • Japan’s VER on U.S. automobiles Roy Philip

10. The General Agreement on Tariffs and Trade (GATT) • Shortly after World War II, the U.S. and 22 other countries signed GATT (1947) which paved the way for the first effective worldwide tariff agreement • Basic elements of the GATT • Trade shall be conducted on a nondiscriminatory basis • Protection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas • Consultation shall be the primary method used to solve global trade problems • Eliminating international trade barriers – Uruguay Round • The General Agreement on Trade in Services (GATS) • Trade-Related Investment Measures (TRIMs) • Trade-Related aspects of Intellectual Property Rights (TRIPs) Roy Philip

11. The World Trade Organization (WTO) • WTO which is an institution, not an agreement, was founded in 1994. • Sets many rules governing trade between its 148 members • Provides a panel exports to hear and rule on trade disputes between members • Issues binding decisions • All member countries will have equal representation • Member countries have open their markets and to be bound by the rules of the multilateral trading system • U.S. ratification concerns • Possible loss of sovereignty over its trade laws to WTO • Lack of veto power • Role U.S. would assume when a conflict arises over an individual state’s laws that might be challenged by a WTO member • China became member of the WTO (2001); Vietnam (2007) Roy Philip

12. Skirting the spirit of GATT and WTO • Loopholes • China reduced tariffs while at the same time increased number and scope of technical standards and inspection requirements • Imposing antidumping duties • Negotiating bilateral trade agreements • May lead to multinational concessions • Not necessarily consistent with WTO goals and aspirations Roy Philip

13. International Monetary Fund (IMF) • Because of inadequate money reserves and unstable currencies, the IMF was created to assist nations in becoming and remaining economically viable • Objectives of the IMF • Stabilization of foreign exchange rates • Establishment of freely convertible currencies to facilitate the expansion and balanced growth of international trade Roy Philip

14. World Bank Group • By promoting sustainable growth and investment in people, the World Bank Group is an institution created in 1944 to reduce poverty and improve standard of living • The World Bank has five institutions which perform the following services: • Lending money to the governments of developing countries • Providing assistance to governments for developmental projects to the poorest developing countries (per capital incomes of $925 or less) • Lending directly to the private sector • Providing investors with guarantees against “noncommercial risk” • Promoting increased flows of international investment Roy Philip

15. Anti-globalization Protests • The unintended consequences of globalizing • Environmental concerns • Worker exploitation and domestic job losses • Cultural extinction • Higher oil prices • Diminished sovereignty of nations • Protests • WTO meeting in Seattle (November 2009) • World Bank and IMF meetings in Washington D.C. (April 2010) • World Economic Forun meeting in Australia (September 2010) • IMF meeting in Prague (September 2010) • Terrorism in London (2005) • “Antisweatshop” campaigns Roy Philip