chapter 11: international trade in the global marketplace copyright 2013 cengage learning

Chapter 11: Chapter 11: International International Trade in the Trade in the

Global Global MarketplaceMarketplace

Copyright 2013 Cengage Learning

“Globalization has changed us into a company that searches the world, not just to sell or to source, but to find intellectual capital—the world’s best talents and greatest ideas.”

Jack Welch, Former CEO of General Electric


Struggles with Globalization


“We must ensure that the global market is embedded in broadly shared values and practices that reflect global social needs, and that all the world’s people share the benefits of globalization.”

Kofi Annan, Former Secretary-General of the United

Nations



Globalization and Trade

Trade integration World trade generally grows faster

than world GDP Trade in services and

telecommunications increasing Developing economies may capture

increasing share of world trade in services

5

The Growth of Global Trade Integration 1999‒2011


“The idea of economic competition among nations is flawed. Companies compete. But economically, countries depend on each other.”

Robert Samuelson, Political economist



Trade, Multinational Corporations, and the Globalization of Production

Multinational corporations (MNCs) Today’s pattern is to dismantle the

“hub” by dispersing production facilities worldwide.

Dispersion made possible by improvements in communication and transportation.

8

The Global Supply Chain



Trade, Multinational Corporations, and the Globalization of Production

MNCs account for one-fourth of world’s production and two-thirds of global exports.

Intra-firm trade MNCs are primary agents in

globalization of productions FDI

10

Globalization and Carbonation


The Shifting Distribution of Foreign Direct Investments



The Globalization of Labor Goods cannot be produced without

labor. Integration of labor markets, predicated

by the global nature of production as well as the increased size and mobility of the global labor force.

Wages and negotiating power of labor declines as labor becomes globalized.

13

Child Labor in a Global System



The Globalization of Labor Overall, globalization may bring

positive, but perhaps unevenly distributed, developments.

Societies may benefit, but there are still winners and losers.

15


Contending Trade Strategies

Liberalism versus mercantilism

16


The Shadow of the Great Depression

Bretton Woods: IMF, IBRD General Agreement of Tariffs and Trade

(GATT)• Reciprocity

• Nondiscrimination

• Transparency

17

Cascading Globalization: Communist China Chooses to Convert to Capitalism and Consumerism


Copyright 2013 Cengage Learning.

Main Differences Between Liberalism and Mercantilism For mercantilism economic

relations are conflictual To mercantilism the states are

the only important actors To mercantilism the goal is to

serve the national interest To mercantilism politics

determines economics Mercantilism postulates that

world transformations are products of shifts in distribution of states’ relative power

For liberalism economic relations are harmonious

To liberalism the major actors are households/business firms

To liberalism the goal of economic activity is to maximize global welfare

To liberalism economics should determine politics

Liberalism’s theory pictures global change in a dynamic ever-adjusting equilibrium

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Commercial Liberalism Humans naturally want to cooperate Trade can benefit all and promote peace Problems of capitalism boom-and-bust

can be solved Open markets and free trade Adam Smith, laissez-faire Absolute advantage—a state should

specialize only in producing that which it can at the lowest cost compared to potential trade partners

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Commercial Liberalism David Ricardo and the principle of

comparative advantage Absolute gains of trade more

important than relative gains Invisible hand maximizes efficiency

of the market Gains from trade are not distributed

equally

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Key Differences Between Liberalism and Mercantilism


Comparative Advantage and the Gains from Trade



The Theory of Comparative Advantage

By specializing and trading, states and individuals can increase overall consumption and efficiency.

Powerfully contradicts the realist view that international affairs are a zero-sum game.

24


Mercantilism Largely an economic extension of Realism Power politics determine economics The state is involved in economics Friedrich List Relative gains are more important than

both players’ absolute gains Even trade can lead to zero-sum

competition.

25


Trade and Global Politics Hegemonic stability theory Collective good—public good, available

to all Collective action dilemma—who pays

for the public good? Hegemon absorbs costs and tolerates

free riders Trade ties tend to discourage military

conflict

26


Trade and Global Politics Economic sanctions—deliberate

economic actions against a target state and a form of coercive diplomacy

May not work against the target, but cost to citizens may be high

27

Sticks and Stones of Economic Statecraft


Economic Freedom in the World



The Fate of Free Trade Global trade continues to grow and

protectionism is low Demands for protectionism still

resonate, especially as economy stalls

Trade tricks Uneasy coexistence of Mercantilism

and Liberalism

30


The Fate of Free Trade Trade Tricks

• Tariffs

• Import and Export Quotas

• Orderly Market Arrangements (OMAs)

• Voluntary Export Restrictions (VERs)

• Nontariff Barriers (NTBs)

• Countervailing Duties

• Antidumping Duties

31


Protectionism

Beggar-thy-neighbor policies Import quotas Export quotas Voluntary export restrictions Non-tariff barriers Protection of infant industries Strategic trade policy Countervailing duties Antidumping duties

32


Uneasy Coexistence of Mercantilism and Liberalism

States simultaneously pursue liberalism and mercantilism.

Foreign aid may require purchase of donor’s goods.

Trade benefits may be linked to support in other issue areas.

Developed economies still maintain tariffs to protect valued sectors.

Rents and rent-seeking

33


Triumph or Trouble for the Global Economy?

The Development of the WTO Regional Trade Arrangements World Trade and the Financial Crisis

34


The Development of the WTO

Trade regime better developed than the monetary.

The GATT/WTO institutional core strengthens the regime.

Early GATT rounds (negotiating meetings) reduced tariffs and other obstacles to trade considerably.

35


The Development of the WTO

The Uruguay Round of the 1980s led to the creation of the WTO in 1995.

Membership has grown from 23 at GATT’s inception to 153 today, with an additional 30 observers.

The Doha Round started in 2002 and addresses various issues like intellectual property rights.

36

The World Trade Organization Goes Global


Is the WTO Killing Agriculture?



Regional Trade Arrangements:Supplement or Substitute for the WTO?

Since early 1990s, rapid proliferation of RTAs and bilateral agreements, increasing tenfold.

In May 2011, 489 RTAs and 297 agreements (according to the WTO).

39

Trade Flows Within and Between Major Regions



World Trade and the Financial Crisis

World trade fell 9 percent in 2008, the first decrease since 1982, and declined another 12.2 percent in 2009.

Trade levels rebounded in 2010 with a growth of 14.5 percent.

Impact of 2008 crisis led to oversupply of goods.

41



The globalization of production magnified the oversupply of goods.

Tendency is for murky protectionism—hidden nontariff barriers.

Flexible exchange rate regimes enabled states to respond without having to resort to protectionism, which could lead to global economic collapse.

42



The stagnation of the Doha Round indicates a juncture for globalized trade:• Realists contend the WTO has limitations to

its international organizational strength.

• Liberals contend the very continued existence of the WTO is a testament to its strength and legitimacy.

43


The Growth of Global Trade Integration

44


The Contribution of Foreign Direct Investments to Globalization, 1970‒2007

45


Questions 1. Will a recovering U.S. economy affect

other nations just as quickly as a troubled one?

2. Why do these countries work independently to improve their economic situations? What are the advantages and disadvantages?

3. What is “peasant power?”

46


The Balance of Trade Exports minus imports Mathematical impossibility for two

states to have a balance of trade with each other

Fair trade

47


Exchange Rates and the Balance of Trade

48

The Interaction of Exchange Rates and the Balance of Trade

Equilibrium: Balanced Trade, stable Exchange Rate

Increase Price (in Dollars) of Imports from Europe (Due to

Increase in Euro Price)

Decreased Demand for Imports from Europe

(Due to Increased Price)

Increase in US Imports (Trade Deficit)

Increased Demand for Euros (To Pay for Increased Imports)

Increased Price of Euros(Due to Increased Demand)


The Growth of World Trade and Wealth, 1950‒2010

49


Questions for Critical Thinking

1. What are the positive and negative aspects of international trade?

2. Is it important to you to purchase free trade products? Why?

3. What are the incentives for states to use protectionism?

50


Web Links Trade Resources World Bank World Trade Organization

51

http://www.usitc.gov/

http://www.worldbank.org/

http://www.wto.org/

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