topic 3 – trade and the global economy
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GS 120 – iGlobalization: Moving The Things We BuyProfessor: Dr. Jean-Paul Rodrigue
Hofstra University, Department of Global Studies & Geography
Topic 3 – Trade and the Global Economy
A – International TradeB – Trade FacilitationC – Global Trade Flows
A – International Trade
International Trade: A Definition
Exchange across national jurisdictions• Goods or services.• Trade between US states is not international trade.
Directional• Inbound trade: imports.• Outbound trade: exports.
Regulatory oversight• Customs and tariffs.• Nations control what crosses their borders.
Read part 1 (The Flows of Globalization)
The Benefits of Trade in a Global Economy
Economic efficiency• Sell what is produced in surplus and acquire what is lacking.• Lower productions costs (cheaper inputs).• Achieve economies of scale (larger markets).
Accessibility to capital, labor and resources• Large variety of resources being made accessible.• Raw materials, energy, goods, food and labor.• Exchanges of capital, merchandises, raw materials and services.
Interdependencies• Spatial interdependencies between elements of the world-system.• The more integrated economies are, the more they trade.• Indirectly promote harmonious relations.
Economic Rationale of TradeCo
untr
y 1
Coun
try
3
Country 2Country 4
Coun
try
1Co
untr
y 3
Country 2Country 4
Without TradeSmall national
markets.Limited economies
of scale.High prices and near monopoly.Limited product
diversity.Different
standards.
With TradeIncreased
competition.Economies of
scale.Specialization.Lower prices.
Interdependencies
The Main Theoretical Foundations of International Trade
• Establishing a positive trade balance to meet economic development goals.
• Tariff and non-tariff measures regulating trade and protecting national commercial sectors.
Neomercantilism
• Produce more effectively in an economic sector while using less resources.
• A nation can focus on its absolute advantages, trade its surplus and import what it lacks.
Absolute advantages
• A nation can focus on the sectors it has the highest comparative advantages.
• A nation having no absolute advantages can focus on sectors where the total productivity gains are the most significant.
Comparative advantages
Changes in the Global Trade Environment
Mobility of Factors of Production
Bulk point-to-point
Container shipping
Country A Country BGlobal M
arket
Supply chain
Comm
odity Market
Immobile Factors of Production
Global Value Chains
Before 1970s
1970s – 1990s
1990s onward
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Favorable and Contentious Factors in International Trade
Explain the main criticism international trade has been subject to.Comparati
ve Advantag
esSpecializatio
n reduces production
costs.
Some nations have
limited advantages
and resources.
OpennessLower prices
for consumers because of lower tariff and non-
tariff barriers.May impact national
industries and
employment.Protectionis
m.
Interdependencies
Promotes collaboration, standards
and technology exchanges.Dependency on foreign goods and resources.
Vulnerability to
disruptions.
Trends Shaping International Trade
Ongoing Growth• Value of exports: 48 times in current
dollars. GDP 22 times and population 1.8 times.
Containerization• Support trade flows. Grows at a rate faster
than trade and GDP growth.
Export-Oriented Economies• Focus on exports to promote economic
growth. Imbalances in trade relations.
Multinational Corporations• Vectors of international trade. Actively
promoting outsourcing and offshoring.
World Merchandise Trade, 1960-2013 Read this content
0
2,000,000,000,000
4,000,000,000,000
6,000,000,000,000
8,000,000,000,000
10,000,000,000,000
12,000,000,000,000
14,000,000,000,000
16,000,000,000,000
18,000,000,000,000
20,000,000,000,000
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Value of Exports Merchandise trade (% of GDP)
Valu
e (T
rillio
ns o
f Cur
rent
$U
S)
Shar
e of
Wor
ld G
DP
(%)
The Decoupling of Trade and the GDP: Global Trade and Container Throughput (1970=100)
1970 1975 1980 1985 1990 1995 2000 2005 2010100
1,000
10,000
Container Throughput (TEU)
Exports (current USD)
GDP (current USD)
Population
520.4 Millions TEU
$63.4 Trillion
$15.2 Trillion
6.84 Billions
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Short Assignment: The Drivers of Global Trade
Explain the main reasons why trade has been growing faster than GDP and population.
B – Trade Facilitation
What factors promote trade?
Read part 2 (Trade Facilitation)
The “Four Ts” in International Trade
International Trade
Transaction costs
Transport costs
Time costs
Tariff and non-tariff costs
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The Main Dimensions of Trade Facilitation
Integration-Based
Customs procedures, regulations
and handling of
documentation.
Compliance to rules and
regulations.
Distribution-Based
Multimodal and
intermodal freight
transport systems.Modes,
infrastructures and
terminals.Physical
capacity to support trade.
Transactions-BasedBanking,
finance and insurance activities
where accounts can
be settled.Receiving
compensation.
Explain the main dimensions of trade facilitation and how they impact trade.
Regional Averages in Trading Across Borders, 2012 (in days)
OECD High Income
East Asia & Pacific
Latin America & Caribbean
Middle East & North Africa
Eastern Europe & Central Asia
Sub-Saharan Africa
South Asia
0 5 10 15 20 25 30 35 40
10.5
21.9
17.8
20
27
31.5
32.1
10.7
23
19.6
24
28.8
37.1
32.5
Time to import Time to export
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Levels of Economic Integration
Free trade between members: NAFTA, Mercosur, ASEAN (partial)
Free
Trade
Common external tariffsCustoms
Unio
n
Factors of production move freely between members
Common
Marke
t
Common currency, harmonized tax rates, common monetary and fiscal policy: EU (partial)
Economic
Union
Common governmentPolitical
Union
Leve
l of
inte
grat
ion
Complexity
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Economic Integration Levels, 2011
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What is NAFTA and which level of economic integration it involves?
China’s Special Economic Zones: An Export-Oriented System
Read this content
Yuan Exchange Rate (per USD), 1981-2015 (Monthly)
Jan-81
Jan-83
Jan-85
Jan-87
Jan-89
Jan-91
Jan-93
Jan-95
Jan-97
Jan-99
Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
Jan-15
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Explain how the change rate of the Yuan is a trade facilitation factor for China.
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C – Global Trade Flows
How global trade is currently organized?
Main Trends in the Structure of Global Trade
Global value chains• Trade in intermediary goods (parts)
increasing.• Growing share of developing economies.Manufactured goods• Growing share of manufactured goods.• Trade cycles impacted by recessions.
Dominance of economic blocs• The dominance of the “triad” (USA / Western
Europe / Japan).• The rise of China.Neo-mercantilism• Export-oriented strategies.• Trade imbalances.
Read part 4 (Global Trade Flows)
Global Trade, 2009: The Importance of the “Triad”
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Share of Product Groups in World Merchandise Trade, 1900-2012
1900
1925
1938
1955
1963
1970
1980
1990
2000
2008
2012
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
57.054.243.6
31.726.118.113.110.77.8 7.9 9.2
40.040.045.044.7
52.361.0
55.0
70.474.866.564.1
1110.2
9.223.7
10.710.6
18.218.8
OtherManufacturesFuelsMining ProductsNatural ResourcesAgricultural Products
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Share of Merchandise Exports by Region, 1948-2012
1948 1953 1963 1973 1983 1993 2003 20120%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CISAsiaMiddle EastAfricaEuropeSouth & Central Amer-icaNorth America
International Trade of Merchandises, 2003-2013 (in billions of dollars and in % of all exports)
Europe
$164.7(16.5 %)
$218.9 (21.9%)
NorthAmerica
(40.5 %)
Asia
$427.9 (22.5%)
(49.9 %)
(61.9 %)
$272.3(9.4 %)
$297.6(15.6 %)
$227.2(7.8 %)
$403.7
$1,795.4
$949.2
Europe
$368.3(15.2%)
$501.1 (20.7%)
NorthAmerica
(49.2 %)
Asia
$1,112.2 (17.5%)
(53.3%)
(68.6 %)
$505.7(7.6 %)
$854.8(14.8%)
$666.6(10.0%)
$1169.3
$4,560.2
$3,075.9
2003 2013
Changes in Global Trade Flows
Industrial PoleDeveloping Economies
Merchandise flows
Raw material flows
Before 1970 After 1970Developed Economies Developed Economies
Developing Economies
1970 1980 1990 2000 2005 2010 20140
10203040506070
LoadedUnloaded
Participation of Developing Economies in Global Seaborne Trade (% of World Tonnage)
Changes in the Value World’s Merchandise Trade, Production and GDP, 1950-2012 (in %)
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-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
Recession Total Merchandise TradeWorld GDP World Merchandise Production
To what correspond the major shifts in global trade in the last 60 years and discuss two examples.
Share of World Goods Exports, Leading Exporters, 1950-2011
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0%
5%
10%
15%
20%
25%
30%
35%
40%
United States JapanGermany ChinaFour large traders (Right axis)
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What is the nature of the changes in global trade this graph reveals?
Global Trade Patterns
■ Negative trade balances• Are negative trade balances harmful for an economy?
• Trade is not a zero sum game.• Positive trade balances are sought by many export-oriented
nations:• Economic growth (produce more than consume).• Accumulation of capital (balance of payments).
• Negative trade balances:• Can be profitable if the balance is compensated by higher productivity
levels and/or cheaper goods.• Can be negative if too imbalanced.• Result in an accumulation of debt (financed by trade partners).• Until this debt is defaulted on.
World’s 20 Largest Exporters and Importers, 2013
China United States
Germany Japan
Netherlands France
Korea, Republic of United Kingdom
Hong Kong, China Russian Federation
Italy Belgium Canada
Singapore Mexico
United Arab Emirates Saudi Arabia
Spain India
Chinese Taipei
0 500 1000 1500 2000 2500
Im-ports
Billions of USD
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World’s Largest Exporters and Importers, 2011
0 500 1000 1500 2000 25000
500
1,000
1,500
2,000
2,500
China
United States
GermanyJapan
Netherlands
France
South Korea
Italy
Russian Federation
Belgium
United Kingdom
Hong Kong
Canada
SingaporeSaudi ArabiaMexico
SpainIndia
Turkey
Viet Nam
Value of Exports
Valu
e of
Impo
rts
Monthly Trade between China and the United States, Billions of USD (1985-2014)
Jan-
85
Jan-
86
Jan-
87
Jan-
88
Jan-
89
Jan-
90
Jan-
91
Jan-
92
Jan-
93
Jan-
94
Jan-
95
Jan-
96
Jan-
97
Jan-
98
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
5,000
Exports Imports Balance (Right scale)
American Foreign Trade by Maritime Containers, 2010 (in TEUs)
Wal-MartTarget
Home DepotLowe's
Sears HoldingDole FoodHeineken
PhilipsChiquita
SamsungLG GroupIkea Intl.
JC PenneyCostco WholsaleAshley Furniture
JardenGeneral Electric
Red BullNike
Whirlpool
0 200,000 400,000 600,000 800,000
696,000
455,500
296,700
221,600
212,800
211,200
129,000
127,200
117,100
109,100
101,900
95,700
89,900
83,000
77,300
77,100
76,700
74,000
72,300
64,100
Importers
America Chung NamKoch IndustriesWeyerhaeuserDow Chemical
DupontNewport CH Intl
JC HorizonShintech
Allenberg CottonPotential Industries
ExxonMobilDelong
BASFMeadwestvaco
Cedarwood-YoungSDDC
Sims Metal ManagementCargill
ScoularEastman Chemical
0
200,000
400,000
600,000
800,000
300,800122,400113,900109,300
93,60093,10082,70079,80078,70078,60075,50075,30070,20063,70060,40060,20052,20051,20050,20048,100
Exporters
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Short Assignment: American Trade Imbalances
The US trade deficit is a recurring issue. Using the last three slides as background material, explain what the main causes of American trade imbalances are.
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