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The Dynamic Environment of International Trade

The Dynamic Environment of International Trade. Learning Objectives. The basis for the reestablishment of world trade following World War II The importance of balance-of-payment figures to a country’s economy The effects of protectionism on world trade The seven types of trade barriers

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The Dynamic Environment of International Trade

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  1. The Dynamic Environment of International Trade

  2. Learning Objectives • The basis for the reestablishment of world trade following World War II • The importance of balance-of-payment figures to a country’s economy • The effects of protectionism on world trade • The seven types of trade barriers • The provisions of the Omnibus Trade and Competitiveness Act • The importance of GATT and the World Trade Organization • The emergence of the International Monetary Fund and the World Bank Group

  3. Top Ten 2004 U.S. Trading Parnters($ billions, merchandise trade) • Insert Exhibit 2.1

  4. Balance of Payments • Transactions recorded yearly • Must always be in balance • A record of condition, not determinant of condition • A Balance of Payments statement includes three accounts: • Current account • Capital account • Reserves account Balance of Payments is the system of accounts that records a nation’s international finance transactions.

  5. U.S. Current Account by Major Components, 2002 ($ billions)

  6. United States Current Account Balance (% of GDP)

  7. What Would One U.S. Dollar Buy? • Insert Exhibit 2.5

  8. Trade Barriers • Tariffs • Quotas • Voluntary Export Restraints • Boycotts and Embargoes • Monetary Barriers • Blocked currency • Differential exchange • Government approval • Standards • Antidumping Penalties

  9. The Omnibus Trade and Competitiveness Act • Designed to deal with trade deficits, protectionism, and the overall fairness of our trading partners. • The bill covers three areas considered critical in improving U.S. trade: • Market access • Export expansion • Import relief • Four ongoing activities to support the growth of international trade: • GATT • The associated World Trade Organization (WTO) • International Monetary Fund (IMF) • The World Bank Group

  10. General Agreement on Tariffs and Trade • Paved the way for the first effective worldwide tariff agreement. • Basic Elements of the GATT: • Trade shall be conducted on a nondiscriminatory basis • Protection shall be afforded domestic industries through customs tariffs, not through such commercial measures as import quotas • Consultation shall be the primary method used to solve global trade problems. • Eliminating barriers to international trade (Uruguay Round): • The General Agreement on Trade in Services (GATS) • Trade-Related Investment Measures (TRIMs) • Trade-Related Aspects of Intellectual Property Rights (TRIPs)

  11. World Trade Organization • An institution, not an agreement as was GATT • Sets many rules governing trade between its 148 members • Provides a panel of experts to hear and rule on trade disputes between members. • Issues binding decisions • All member countries will have equal representation • For the first time, member countries, will undertake obligations to open their markets and to be bound by the rules of the multilateral trading system. • Trouble with U.S. ratification: • Concern for the possible loss of sovereignty over its trade laws to WTO • The lack of veto power • The role the U.S. would assume when a conflict arises over an individual state’s laws that might be challenged by a WTO member. • Skirting the Spirit of GATT and WTO

  12. The International Monetary Fund • Created to assist nations in becoming and remaining economically viable. • Objectives of the IMF: • Stabilization of foreign exchange rates • Establishment of freely convertible currencies to facilitate the expansion and balanced growth of international trade • Special Drawing Rights (SDRs) • “paper gold”

  13. The World Bank Group • Institution that has as its goal the reduction of poverty and the improvement of living standards by promoting sustainable growth and investment in people. • The World Bank has five institutions each of which performs the following services: • Lending money to the government of developing countries • Providing assistance to governments for developmental projects to the poorest developing countries. • Lending directly to the private sector • Providing investors with investment guarantees against “noncommercial risk.” • Promoting increased flows of international investment

  14. Summary • The benefits from absolute or comparative advantage clearly can accrue to any nation. • Increased pressure for protectionism from every region of the globe. • The consumer seldom benefits from such protection. • Free international markets help underdeveloped countries become self-sufficient. • Freer trade will always be partially threatened by various governmental and market barriers that exist or are created for the protection of local businesses. • The future of open global markets lies with the controlled and equitable reduction of trade barriers.

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