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2. The Dynamic Environment of International Trade PowerPoint presentation prepared by: Amrendra Kumar Rai Business School 3. Learning Objectives 1. The basis for the reestablishment of world trade following World War II 2. The importance of balance-of-payment figures to a countrys economy 3. The effects of protectionism on world trade 4. The seven types of trade barriers 4. Chapter Learning Objectives 5. The provisions of the Omnibus Trade and Competitiveness Act 6. The importance of GATT and the World Trade Organization 7. The emergence of the International Monetary Fund and the World Bank Group 5. The International Marketing Environment 7 3. ECONOMY Environmental uncontrollables country market A Environmental uncontrollables country market B Environmental uncontrollables country market C 1. Competition 1. Competition 2. Technology Price Product Promotion Place or Distribution 6. Geography and InfrastructureForeign Environment ( Uncontrollables ) 7. Structure of Distribution 3. Economy 5. Political- Legal Domestic environment ( Uncontrollables ) ( Controllables ) 2 .Technology 4. Culture 5. Political- Legal 4. Culture TargetMarket 6. Introduction Proliferation of trade and emergence of the global economy Intensification of global competition More emerging markets Developments in technology allow communications with global consumers and movement of goods 7. 8. The 20 thto the 21 stCentury First World War Worldwide economic depression Second world war Cold war and divide between communist-socialist-capitalist approach to economic development The Marshall Plan for rebuilding Europe 9. The 20 thto the 21 stCentury Financial and industrial development assistance to rebuild Japan Role of Agency for International Development to foster economic growth in the underdeveloped worldGreater demand for U.S. goods and services Greater cooperation among trading nations GATT via reduction of tariffs and trade barriers GATT replaced by the World Trade Organization (WTO) and new era of free trade 10.

  • Rapid growth of underdeveloped countries and new global marketing opportunities
  • Rising living standards have created marketing opportunities for U.S. firms

World Trade and U.S. Multinationals 3. Resistance over domination of U.S. multinationals 4. Expropriation and domestication of U.S. investments in Latin America 5. In the Europe, U.S. multinationals were controlled tightly by protectionism laws 11.

  • Resurgence of competition from all over the world challenged the supremacy of American industry
  • Newly industrialized countries (NICs) such as Brazil, Mexico, South Korea, Taiwan, Singapore, and Hong Kong experienced rapid industrialization
  • Economic power evenly distributed with growth of MNCs from other countries (see Exhibit 2-2)

World Trade and U.S. Multinationals 4.Establishment of the WTO 5.Integration of European Union countries6.Creation of NAFTA, AFTA, and APEC 12. 13. 21st Century: The First Decade and Beyond With exception of China, slower economic growth in U.S. and other countries is currently evident. Faster growth rates expected in developing countries such as Brazil, China, India, Indonesia, and Russia. More trade expected in emerging markets, regional trade areas, and the established markets in Europe, Japan, and U.S. Companies need to be more efficient, improve productivity, expand global reach, and respond quickly. Greater growth in international sales expected by smaller firms. 14.

  • When countries trade there are financial transactions among businesses or consumers of different nations
  • Money constantly flows into and out of a country
  • The system of accounts that records a nations international financial transactions is called its balance of payments (BP)
  • It records all financial transactions between a countrys firms, and residents, and the rest of the world usually over a year
  • The BP is maintained on a double-entry bookkeeping system

Balance of Payments 15.

  • The BP is the difference between receipts and payments

Balance of Payments

  • merchandise export sales.
  • money spent by foreign tourists.
  • transportation.
  • payments of dividends and interest from FDI abroad.
  • new foreign investments in the U.S.

BP Receipts

  • costs of goods imported.
  • spending by U.S. tourists overseas.
  • new overseas investments.
  • cost of foreign military and economic aid.

BP Payments 16.

  • The BP includes three accounts:

Balance of Payments (1) current accounta record of all merchandise exports, imports, and services plus unilateral transfers of funds; (2) the capital accounta record of direct investment, portfolio investment, and short-term capital movements to and from countries; (3) the official reserves accounta record of exports and imports of gold, increases or decreases in foreign exchange, and increases or decreases in liabilities to foreign central banks; 17. 18. United States Current Account Balance Percent + 19.

  • If a countrys expenditures consistently exceed its income, its standard of living falls
  • Its exchange rate vis--vis foreign monies declines
  • When foreign currencies can be traded for more dollars, U.S. products are less expensive for foreign customers and exports increase
  • Simultaneously foreign products are more expensive for U.S. buyers and the demand for imported goods is reduced

Balance of Payments and Exchange Rate 20. 21. 22. Protectionism: Logic and Illogic Countries use protectionist measures to shield a countrys markets from intrusion by foreign competition and imports.

  • Arguments for Protectionism include:
  • maintain employment and reduce unemployment.
  • increase of business size, and
  • retaliation and bargaining.
  • 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.
  • protection of an infant industry
  • industrialization of a low-wage nation
  • national defense

23. Protectionism: Logic and Illogic In general, protectionism contributes to industrial inefficiency and makes a nation uncompetitive Arguments 9-11 above are considered valid for protectionismProtectionism is implemented through the imposition of trade barriers, which include tariff barriers and non-tariff barriers 24. The Impact of Tariff (Tax) Barriers

  • Tariff Barriers tend toIncrease :
  • Inflationary pressures
  • Special interests privileges
  • Government control and political considerations in economic matters
  • The number of tariffs they beget via reciprocity
  • Tariff Barriers tend toWeaken :
  • Balance-of-payments positions
  • Supply-and-demand patterns
  • International relations (they can start trade wars)
  • Tariff Barriers tend toRestrict :
  • Manufacturer supply sources
  • Choices available to consumers
  • Competition

25. Six Types of Non-Tariff Barriers

  • (2) Customs and Administrative Entry Procedures:
  • Valuation systems
  • Antidumping practices
  • Tariff classifications
  • Documentation requirements
  • Fees
  • (1) Specific Limitations on Trade:
  • Quotas
  • Import Licensing requirements
  • Proportion restrictions offoreign to domestic goods (local content requirements)
  • Minimum import price limits
  • Embargoes

26. Six Types of Non-Tariff Barriers

  • (3) Standards:
  • Standard disparities
  • Intergovernmental acceptances of testing methods and standards
  • Packaging, labeling, and marking
  • (4) Government Participation in Trade:
  • Government procurement policies
  • Export subsidies
  • Countervailing duties
  • Domestic assistance programs

27. Six Types of Non-Tariff Barriers

  • (5) Charges on imports:
  • Prior import deposit subsidies
  • Administrative fees
  • Special supplementary duties
  • Import credit discriminations
  • Variable levies
  • Border taxes
  • (6) Others:
  • Voluntary export restraints
  • Orderly marketing agreements

28. Monetary Barriers In addition to the Six Types of Non-Tariff Barriers, monetary barriers are also used by countries

  • Three types of monetary barriers include:
  • Blocked currency:Blockage is accomplished by refusing to allow importers to exchange its national currency for the sellers currency.
  • Differential exchange rates:It encourages the importation of goods the government deems desirable and discourages importation of goods the government does not want by adjusting the exchange rate. The exchange rate for importation of a des