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CHAPTER 2 : International Trade Institutions and U.S Trade Policy

CHAPTER 2 : International Trade Institutions and U.S Trade Policy. Learning Objectives :. Understand the influence of trade on selected historical developments. Understand the role of transnational institutions affecting trade.

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CHAPTER 2 : International Trade Institutions and U.S Trade Policy

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  1. CHAPTER 2 : International Trade Institutions and U.S Trade Policy Learning Objectives : • Understand the influence of trade on selected historical developments • Understand the role of transnational institutions affecting trade • Understand the current U.S international trade position • Impacts of trade and investment on the United States • Understand the drivers of Globalization • Policy response to trade problems • Strategic perspective of U.S trade policy

  2. Importance of trade to economic prosperity • The Historical Dimension • Ancient traders • Rome and the Pax Romana • European Feudalism in the middle ages • The Smoot-Hawley Act in the 1930’s • The Emergence of global division • Council For Mutual Economic Assistance (CMEA) • The Soviet Union and the Eastern Bloc • Encourage strong linkages between member countries and discourage trade with the West. • Pax Americana • The U.S and the western world • Encourage world trade for worldwide prosperity

  3. Transnational institutions affecting world trade • International Trade Organization (ITO): 1948 • General agreement on tariffs and trade (GATT): 1947 • World Trade Organization (WTO): 1995 • International Monetary Fund (IMF): 1944 • World Bank (WB): 1944 • General Agreement on Trade in Services (GATS): 1945 • Most-Favored Nation (MFN) Clause “ … Each member country of the GATT must grant every member country the most favorable treatment it accords to any other country with respect to imports and exports”

  4. Globalization Drivers a. Market Drivers • Common customer needs. Convergence (Ted Levitt) • Global customers and channels • Transferable marketing experience (learning) b. Cost Drivers • Economies of scale • Steep experience curve • Global sourcing efficiencies • Favorable logistics • Significant differences in labor costs between countries • Changing technologies and shortening product life cycles

  5. Globalization Drivers (Continue) c. Competitive Drivers • Global competition. Same competitors in major markets. • Interdependent Countries • Very positive trends in trade (exports & imports) d. Government Drivers • Liberalization of trade policies • Compatible technical standards (ISO 9000) • Deregulation of industries • Privatization (State-owned enterprises being privatized) e. Technology Drivers • Internet technology and its impact on distribution • Information technology and informed/knowledgeable customer • Telecommunications technology and convergence of consumer tastes

  6. REGIONAL INSTITUTIONS Regional Trading (Economic) Bloc To Promote Trade • The European Coal and Steel Community • European Union • North American Free Trade Area (NAFTA) • Mercosur in Latin America • Gulf Cooperation Council (GCC) • ASEAN (Association of Southeast Asian Nation) • APEC (Asia Pacific Economic Cooperation)

  7. Current U.S Trade Position • Merchandise exports as a percentage of GNP ranged from 7.7% in 1982 to 5.3% in 1986 to 8.1% in 1995 • U.S share of world trade declined from 25% in 10950 to about 12.7% in 1998 • USA is less dependent on exports than other industrial nations. • On a per capita basis U.S exports about $3550 worth of goods and imports $4550 worth of goods creating about $1000 trade deficit on a per capital basis. • Inspite of over 7 million business in the U.S only 210,000 are engaged in exporting. - Large 1500 MNCs account for more than 80% of U.S Trade - U.S Domestic market negatively impacts U.S exports

  8. Policy Responses To Trade Problems • Restrictions of imports - Tariff Barriers - Non tariff barriers • Restrictions of exports - National security - Foreign policy - Short supply products • Export promotion efforts - Need to earn foreign currency - Encourage domestic employment - Increase domestic economic activity • Export promotion staffing in the U.S is lowest among industrialized nations on GDP basis.

  9. A Strategic Outlook • Locus of control of U.S Trade policy - Department of Commerce (DOC) - Department of Defense (DOD) - Department of Agriculture - State Department • Trade Policy Approach - Bilateral approach - Multilateral approach - Sectoral Focus - Sectoral Negotiation • Foreign Direct Investment (FDI) in the U.S • U.S investments abroad

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