The Dynamic Environment of International Trade

1. The Dynamic Environment of International Trade Chapter 2

2. History of World Trade • Early Twentieth Century • Great Depression • World War II • Late Twentieth Century • Marshall Plan • Decolonization • Lowering of trade restrictions Source: www.marshallplan.freeterritorytrieste.com

3. History of World Trade • Problems with internationalization in 1960’s • Resistance to U.S. investment • Increasing competition • U.S. Balance of Trade • 1888-1971= Trade surplus • Since 1971= Trade deficit • Free trade • NAFTA • Asian markets Source: www.globalization101.org

4. History of World Trade • Recent Trends • Rise of other economies • Smaller companies going global

5. Balance of Payments • What is it? • Receipts from other countries (plus side): • Export sales • Money spent by foreign tourists • Foreign investments into the U.S. • Foreign government payments • Payments to other countries (negative side): • Imports • Spending by American tourists overseas • New overseas investments • Cost of economic and military aid

6. Balance of Payments • Three types of accounts • Current account • Capital account • Reserves account • If a country’s expenditures > income, its citizens must reduce standard of living, or its money will lose value against other countries’. • Deficit= Loss of value for the dollar

7. Protectionism • Acts to “protect” a country’s markets from foreign competitors • Why? • Infant industry • National defense • Industrialization of underdeveloped countries

8. Protectionism • Tariffs • A tax on imported goods • Quotas • A unit or dollar limit placed on a good • Sometimes paired with tariffs • Voluntary Export Restraints • Boycotts and Embargoes • What’s the difference?

9. Protectionism • Monetary Barriers • Blocked currency • Differential exchange rate • Government approval to secure foreign exchange • Standards • Antidumping Penalties

10. Easing Trade Restrictions • Market access • Allows US to retaliate against protectionism • Export expansion • Easier to gain an export license • Government responsible for exporter needs • Import relief • Offers assistance to companies impacted by imports

11. Easing Trade Restrictions • General Agreement on Tariffs and Trade • U.S. and 22 other countries • Reduces tariffs • Set up an organization to monitor trade • Resulted in deep cuts of tariffs

12. Easing Trade Restrictions • World Trade Organization • Began in 1995 • Governs trade • Settles disputes and issues penalties against countries practicing protectionism

13. Easing Trade Restrictions • International Monetary Fund • Stabilize exchange rates • Lends money to member countries • Special drawing rights • Average base of value to counter fluctuations in world gold values

14. Easing Trade Restrictions • World Bank Group • Lend money and provide assistance to developing countries • Mediate between investors and foreign governments