The Dynamic Environment The Dynamic Environment of International Tradeof International Trade

Chapter 2Chapter 2

History of World TradeHistory of World Trade

• Early Twentieth Early Twentieth CenturyCentury– Great DepressionGreat Depression– World War IIWorld War II

• Late Twentieth Late Twentieth CenturyCentury– Marshall PlanMarshall Plan– DecolonizationDecolonization– Lowering of trade Lowering of trade

restrictionsrestrictionsSource: www.marshallplan.freeterritorytrieste.com

History of World TradeHistory of World Trade

• Problems with Problems with internationalization in internationalization in 1960’s1960’s– Resistance to U.S. Resistance to U.S.

investmentinvestment– Increasing competitionIncreasing competition

• U.S. Balance of TradeU.S. Balance of Trade– 1888-1971= Trade surplus1888-1971= Trade surplus– Since 1971= Trade deficitSince 1971= Trade deficit

• Free tradeFree trade– NAFTANAFTA

• Asian marketsAsian markets

Source: www.globalization101.org

History of World TradeHistory of World Trade

• Recent TrendsRecent Trends– Rise of other economiesRise of other economies– Smaller companies going globalSmaller companies going global

Balance of PaymentsBalance of Payments

• What is it?What is it?• Receipts from other countries (plus side):Receipts from other countries (plus side):

– Export salesExport sales– Money spent by foreign touristsMoney spent by foreign tourists– Foreign investments into the U.S.Foreign investments into the U.S.– Foreign government paymentsForeign government payments

• Payments to other countries (negative side):Payments to other countries (negative side):– ImportsImports– Spending by American tourists overseasSpending by American tourists overseas– New overseas investmentsNew overseas investments– Cost of economic and military aidCost of economic and military aid

Balance of PaymentsBalance of Payments

• Three types of accountsThree types of accounts– Current accountCurrent account– Capital accountCapital account– Reserves accountReserves account

• If a country’s expenditures > income, its If a country’s expenditures > income, its citizens must reduce standard of living, or its citizens must reduce standard of living, or its money will lose value against other money will lose value against other countries’. countries’. – Deficit= Loss of value for the dollarDeficit= Loss of value for the dollar

ProtectionismProtectionism

• Acts to “protect” a country’s markets Acts to “protect” a country’s markets from foreign competitorsfrom foreign competitors– Why?Why?

• Infant industryInfant industry

•National defenseNational defense

• Industrialization of underdeveloped Industrialization of underdeveloped countriescountries

ProtectionismProtectionism

• TariffsTariffs– A tax on imported goodsA tax on imported goods

• QuotasQuotas– A unit or dollar limit placed on a goodA unit or dollar limit placed on a good– Sometimes paired with tariffsSometimes paired with tariffs

• Voluntary Export RestraintsVoluntary Export Restraints

• Boycotts and EmbargoesBoycotts and Embargoes– What’s the difference?What’s the difference?

ProtectionismProtectionism

• Monetary BarriersMonetary Barriers– Blocked currencyBlocked currency– Differential exchange rateDifferential exchange rate– Government approval to secure foreign Government approval to secure foreign

exchangeexchange

• StandardsStandards

• Antidumping PenaltiesAntidumping Penalties

Easing Trade RestrictionsEasing Trade Restrictions

• Market accessMarket access– Allows US to retaliate against protectionismAllows US to retaliate against protectionism

• Export expansionExport expansion– Easier to gain an export licenseEasier to gain an export license– Government responsible for exporter needsGovernment responsible for exporter needs

• Import reliefImport relief– Offers assistance to companies impacted by Offers assistance to companies impacted by

imports imports

Easing Trade RestrictionsEasing Trade Restrictions

• General Agreement on Tariffs and General Agreement on Tariffs and TradeTrade– U.S. and 22 other countriesU.S. and 22 other countries– Reduces tariffsReduces tariffs– Set up an organization to monitor tradeSet up an organization to monitor trade– Resulted in deep cuts of tariffsResulted in deep cuts of tariffs

Easing Trade RestrictionsEasing Trade Restrictions

• World Trade OrganizationWorld Trade Organization– Began in 1995Began in 1995– Governs tradeGoverns trade– Settles disputes and issues penalties Settles disputes and issues penalties

against countries practicing against countries practicing protectionismprotectionism

Easing Trade RestrictionsEasing Trade Restrictions

• International Monetary FundInternational Monetary Fund– Stabilize exchange ratesStabilize exchange rates– Lends money to member countriesLends money to member countries– Special drawing rightsSpecial drawing rights

•Average base of value to counter Average base of value to counter fluctuations in world gold valuesfluctuations in world gold values

Easing Trade RestrictionsEasing Trade Restrictions

• World Bank GroupWorld Bank Group– Lend money and provide assistance to Lend money and provide assistance to

developing countriesdeveloping countries– Mediate between investors and foreign Mediate between investors and foreign

governmentsgovernments